Reservation era nears an end for small units
Govt Knocks Off 79 Items From SSI List New Delhi: Almost 17 years after the process of reforms began in India, one of the last remaining legacies of the licence-permit raj era is now almost obliterated. The commerce and industry ministry on Friday ended the monopoly of small-scale units on 79 items, leaving just 35 on the reserved list that once had as many as 873 items. While industrial policy reforms began with the new industrial policy statement of PV Narasimha Rao in July 1992, governments remained wary of intruding on the politically sensitive issue of reservation for small-scale industry (SSI) till the end of the 1990s. Thus, while at the turn of the millennium the number of items reserved for SSI units had come down from its peak of 873 in 1984, well over 800 items remained on the list. Since 2002, the scenario has changed dramatically. In these last seven years, around 790 items — including things like farm equipment, toothpaste, ice cream, footwear, detergents and even garments — have been knocked off the list. Thus, for the first time in over 40 years, there are today as few as 35 items reserved for SSI units. When the policy of reservation was first introduced in 1967, there were just 47 items reserved for smallscale manufacturers. However, what was till then an administrative decision was given legal backing by an amendment enacted in 1984 to the Industries (Development and Regulation) Act, 1951. That year also saw the number of items reserved reaching a peak of 873. The policy of reservation meant that it was routine in the late 1990s and early years of the millennium for visitors to Nirman Bhavan to see flocks of anxious businessmen clustering in a narrow corridor on one of the upper floors, waiting to plead with babus in the SSI ministry to ensure that their sector was kept within the ambit of reservation so that they could escape competition from large industrial houses. Friday’s announcement effectively reduces this to a fringe show. Reservation means that units producing the reserved items cannot go beyond a stipulated cap on investment in plant and machinery. In the old days, therefore, it was standard practice for mass consumption items covered by the reserved list to be farmed out by large marketing companies to dozens of small units, thereby negating economies of scale. What it also meant was that some companies resorted to manufacturing completely new class of products. So, if ice cream was reserved for small scale units, a large player could always produce, say, ‘frozen desserts’. Apart from the steady trickle of dereservation over the last decade, one of the measures taken to get over this problem without confronting the political problems involved was to allow foreign investment even in reserved items with the caveat that such units would have to fulfill an export obligation. For players who were already manufacturing items that were suddenly reserved in 1967, the government came up with what was carryon-business licence which capped their capacity, and fixed the location of the plant and the goods produced. Friday’s derservation means that pastries, hard boiled sugar candy and tooth powder can be manufactured by large units too. Similarly, buckets, paper bags, paper cups, envelopes, letter pads, paper napkins might not be manufactured only in small units but also in specialised factories. The same for sesame and rapeseed oil, which are not solvent extracted, a host of chemicals and dyes paints be it distempers. Electrical goods, which includes geysers, hot air blowers and toasters too are out of the reserved list, as are ballpoint and fountain pens. What about the remaining 35 items? The government is keeping its fingers crossed. “If industry is willing, we will do away with the reserved list altogether,” said a senior official in the ministry.