Sample Materials of SSC CGL (Tier -3) Study Kit

Subject: Essay

Topic: Globalization Would Finish Small-Scale Industries in India

Globalization is a relatively new phenomenon in India. Till 1991, India followed a rather closed policy. It believed in self-reliance and self-sufficiency. It did not have a lot of contact with the outside world. In 1991, as a result of an impending economic crisis, the Indian government, then under the leadership of Prime Minister P.V Narasimha Rao, took up a number of reforms that opened us to the outside world. These reforms were namely the Liberalization, Privatization and Globalization reforms. We opened up our economy to the outside world so that there would be more exchange. Globalization is the metamorphosis of the individual nations into an integrated entity by means of their interconnection on an economic, social and cultural level, fuelled by easy transport and communication among them. It is the modern renaissance that makes ideas, goods, services, trade, technology and culture permeate into the entire geography of the world thus turning it into a global village.

Globalization would finish small scale industries in India, horror that’s set in the minds of Indian citizens belonging to little below or slightly above poverty level. The concept behind Globalization is nothing but a socially, economically & culturally united society which includes the whole world. Trading, capital flow, labor exchange & business would not be limited by any geographical boundary rather it would spread all over the world. Best products from best places at best prices could be available without much territorial bindings. Industries in India can invest in foreign trades and principally accept foreign policies for better performance which in turn would increase economic status of the country. While globalization is a large scale phenomenon, small scale enterprises are a local phenomenon but having effects of dimensions as large as it’s global ‘friend and foe’. Friend- because both globalization and small scale industries are the two wheels of the vehicle of economic growth and prosperity; foe- because some argue that given the developing nation that India is, Small Scale Industrie (SSIs) can suffer and strangulate to death by the fierce competition put up by globalization. Let us observe and decide.

Low scale industries in India fear globalization wood flood the local business and industries bringing down extreme agony. They fear cheaper foreign products would be preferred than traditional costly Indian classics. But if this fear thought with a rather different view the mentioned crisis can be turned towards economic boom in India. As the foreign products can be imported at cheaper rate, there also lies a possibility of Indian products to be exported at massive rate. Income earned by Indian large scale industries through foreign trade can be partly invested to promote small scale industries by the government equipping small scale industries with the advanced technology and the best materials possible induced through globalization effects. Thus maintaining the chain rule small scale industries gets the chance to produce fine products at cheaper prices and increasing sales rate thus gradually rising towards large scale industry than staying in small scale for ever. Globalization helps in economic growth of any society and there is always a way to improve and find solutions for an economically sound society. When capital flow is restricted it can never be utilized for betterment of standards, Its the liquidity of capital that helps rise the entire economic status of a country and maintaining a proper balance.

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Micro and small scale enterprises have existed in India since ages in the form of traditional skills and knowledge based products made by people for the self sufficiency of rural India. Today as per the government definition, “An industrial undertaking in which the investment in fixed assets in plant and machinery whether held on ownership terms on lease or on hire purchase does not exceed Rs. 10 million, can be categorized as small scale undertaking”.

After independence, the Indian government made various laws to help revive and flourish the SSI because of the employment potential it had at a low capital cost. It needed mediocre technical knowledge and minimal infrastructure to set up. Thus it was and is the most ideal form of employment opportunity for both the urban and rural population. It not only encourages entrepreneurship among people but also makes them self reliant. Govt. funding, support and intensive promotion has aided people to participate more in this successful phenomenon making SSI the second largest employment sector after agriculture. It forms about 45-50% of our exports. The products also form a large percentage of our domestic market too with SSI producing a number of products like confectionaries, spices, beverages, natural essence oils, dyes, sports goods, wooden furniture, glass, ceramic and earthen wares, cotton and woolen knitted products, silk and synthetic wear, leather shoes, bags, garments and novelty items, plastic items, survey instruments, auto parts, clocks and watches, musical instruments, lab chemicals, basic metallic and non-metallic mineral products. They are the dynamic sectors of our economy. It also leads to the preservation of many traditional and indigenous skills and products our country is famous for. It is the road to rural industrialization and ‘rural urbanization’ thus creating a regional balance.

Even though the Indian government had initiated reforms, it was clear that India would take a really long time to start making quick progress. This was because for more than 40 years we followed a very closed policy and as a result we were not on the radar of the countries. To them, India wasn’t a very big opportunity. But the new reforms definitely changed all that. Like any drug, the reforms took time to work up on the problems of the ailing Indian economy. But the initiation of the reforms was a huge step forward for India. India opened up to the outside world. India tried to attract foreign investment in order to boost its economy. The reforms were indeed a success. The reforms has put India back on the map. A country once ignored and forgotten is now a contender for a superpower status.

After foreign capital was pumped into the Indian economy, the economy grew extremely fast. Production increased manifold, millions of people now got jobs, new firms were established, new technology was introduced into India, incomes rose, opportunities multiplied and a lot more happened. Globalization has had a very profound impact on the manufacturing and industrial sector of India. Before the reforms happened in 1991, the Indian government had a very bad industrial policy. India was trying to become socialist like the Soviet Union. Socialism was a very appealing dream to many Indian leaders but what these leaders forgot was that in order to empower the people, you need to provide them with the means to do so. Indian leaders forgot this and tried to replicate the Soviet model. The same applied to the industrial sector. India prioritized the setting up of heavy industries. Consumption goods were given least priority. Manufacture of machines and tools were given more importance than the manufacturing of consumption goods.

India was self reliant and self sufficient but with the march of the world towards industrialization India found its closed policy of trade leading to an impending economic crisis. The main reason behind this was the focus of efforts on heavy industries and lack of it on the consumption goods. From 1991 India witnessed a major change as the govt. introduced liberalization, privatization and globalization reforms to pep up the economy. Soon the world realized what a big 1billion-population-market India was. They brought their goods to India which were mass produced and therefore cheaper and of better quality than the local goods. They started challenging the SSI and thus posed an end to them. Further with the introduction of Special Economic Zones (SEZs), the MNCs were facilitated with areas with liberal economic and trade laws, round the clock facilities and concessions to enhance foreign investments and promote exports. This endangered the existence and survival of SSIs.

But this is not the complete picture. A lot of foreign entrepreneurs who do not have the time or funds to build the infrastructure for their own manufacturing unit in India engage a number of SSI owners to produce goods for them in a short span of time and sell them to cater to the international demand. In other words they outsource the manufacturing to the Indians. Thus it leads to more labour absorption and growth of SSIs. Many of the SSIs have turned into LSIs this way. Also the demand for SSI goods will never finish as a lot of their products are not lucrative options for the MNCs. For example, the incense sticks or agarbatties, bangles, pickles, etc. are not a catch for LSIs but have a constant demand and thus SSIs have a great opportunity in identifying such areas.

The government, knowing how much revenue it can mean to the state, also encouraged the foreign companies to come and set up their production here in India. As a result, the government introduced something called the Special Economic Zones or SEZ’s. These were areas where the firms could come in and establish their production facilities. They would be given adequate facilities and privileges to run their businesses there. The facilities included round the clock electricity and water supply, adequate labour, transport facilities. The firms set up their production here because they had certain privileges out of operating from these SEZ’s. They were given tax breaks, incentives, subsidies and a lot more to encourage more production. As a result, thousands of foreign firms thronged to these SEZ’s to set up their production. Not only were they eyeing the various concessions given by the state but were also targeting the massive market of 1 billion people. Large companies set up huge industries here in India. Thousands of companies decided to set up their manufacturing here. Production was high.

So it can be said that both globalization and SSIs are the essentials of Indian economy and India must make efforts to promote, sustain and aid both in a fair and unbiased way. A fruitful measure would be to reserve certain goods for production exclusively by the SSIs and their intelligent outsourcing by the govt. to ensure maximum benefits. Also the govt. should advertise the indigenous goods worldwide so that the foreign folk also go in for the ethnic items produced here like khadi, silk, wool, statues, gems, ornaments, etc. as these represent the traditional art form and culture of the region. As far as the financial aids are concerned, the govt. is doing good work to make things simple and possible for the interested individuals by funding and financial support. Also the setting up of institutes for technical training and skill enhancement of the workforce is helping in a big way. While globalization has put us on the map of superpower countries, SSIs have empowered the common man to walk with the same stride as the big-wigs. For India to be a superpower, it is must make efforts to strengthen each and every thread of its economic fabric to make the flag of its success fly high

However it wasn’t all a very rosy story. Many Indian producers had to shut their production down because they simply were not able to compete with these new firms with larger production capabilities. Many Indian producers and industrialists perished this way. Globalization had a very bad impact on the small scale industries as well. First of all, its very important to understand that even today, over 70% of India’s workforce is engaged in the agricultural sector. This is the sad situation of a country who is aiming to be a superpower in the next 40 years. Small scale industries were not so popular then. There were very few small scale industries. They produced goods on a rather small scale and their markets too were small. Small scale industries in India mainly consisted of soap, cosmetics, shoes, bags, novelty items etc. Since they were produced on a rather small scale, their prices were not that low. They were moderately priced. With the coming of globalization however, the scenario changed. Large factories produced these goods on a much larger scale and made the prices much cheaper and as a result, small scale industries started shutting down because they could not face the competition by the large producers.

By the above analysis, one would believe that globalization has ultimately led to the demise of the small scale industries sector in India. But that is clearly not the case.

Though many firms come to India and set up huge factories, there are many other firms who simply outsource the manufacturing to the Indians. They don’t come here and set up factories. They simply contract an Indian factory to produce goods for them. This has become the new trend nowadays. Firms find setting up new factories and infrastructure here in India a big drain of resources and time. They could get the same products without having to establish factories or any sort of infrastructure. That is more cost-effective and reasonable and it saves the firm a lot of money on the long run.

Many contractors in India are not in a position to build huge factories with many production lines. In India, many industries are labour-intensive than capital intensive. This is because India has a huge workforce and they are willing to work for lower wages. What the contractor does is sub-contract the same job to maybe 3-4 small scale producers and gets the job done. He does not have to invest in machinery or employ people for the job.
These small scale industries complete their job and send the products back to the contractor and he ships them to the client abroad. This is best explained with an example. Another way small scale industries actually thrive when globalization is present is when large scale factories sub-contract certain jobs to small-scale industries. Large factories often find it necessary to get certain jobs outsourced from outside.

So we can conclude that Globalization would not finish small scale industries rather if properly practiced would turn small scale industries to large scale massive exporters resulting in economic growth and stability, increased funds and a better lifestyle raising Indian Standards to much higher levels. At the end of the day, when we look at the situation at hand from all sides, we see that globalization has not only sustained small-scale industries in India, but also strengthened it and made it more prosperous.

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