The Big Sleep

Many of the perceived benefits of SSI have long since proved to be elusive, if not mythical. Yet, reservation persists, like a millstone around the reformers' collective neck. The Abid Hussain Committee pointed out in 1997 that with the impending withdrawal of quantitative restrictions (QRs) on consumer goods, many of which are on the list of reserved products, reservations were not only redundant, they would be counter-productive. Indian SSI units, saddled with uneconomic scales of production and obsolete technologies, would have to compete with the best products the world had to offer. An unequal battle, if ever there was one. Ending reservations immediately would at least give Indian producers some time and an opportunity to gear up to face the competition.

 

The recommendation was not acted upon. Now, the economy is at the threshold of the complete removal of QRs. At least now, the government might have been expected to act with speed and resolve. Instead, the views emerging from various quarters in government on this issue suggest a deep state of somnolescence. One view is that the SSI sector is not quite ready for dereservation. There are reassuring noises about selective and cautious dereservation. There is talk about a large fund to provide a safety net for SSI units in trouble. The picture that emerges suggests a complete denial of the reality facing the SSI sector. The state of inertia has even meant a postponement in the cabinet's decision on SSI policy.

Time is fast running out, if it hasn't already. The government must rise above the struggle of powerful vested interests in this sector and begin to view small-scale manufacture in the broader context of the industrial structure of the economy. East Asian experience suggests that large-scale units are not at all incompatible with labour-intensive production. The primary objective of reforms was to accelerate growth by putting the economy's resources to more productive use. This would have happened if resources had shifted to more labour-intensive sectors. That shift, at least in the manufacturing sector, is not that easy to see. Many people believe that this is so because the incentives generated by the reforms of 1991 were severely diluted by the persistence of reservation.

In economic policy, as in medicine, the more advanced the disease is, the more drastic the remedy needs to be. This is not the time for pussy-footing about. There is only one cure left, and that is complete dereservation. Yes, the vested interests in the current SSI regime will be severely hurt. But, the consequences of an inadequate response will be far greater.