I. Introduction Small industry has been one of the major planks of India's economic development strategy since Independence. India accorded high priority to small and medium enterprises (SMEs) from the very beginning and pursued support policies to make these enterprises viable and vibrant and over time, these have become major contributors to the GDP. Despite numerous protection and policy measures for the past so many years, SMEs have remained mostly small, technologically backward and lacking in competitiveness. The opening of the Indian economy in 1991 added problems to the SMEs. At the beginning, small scale enterprises found it difficult to survive. In the last decade, the economic environment has changed in favour of SMEs. Presently, the SMEs in India are at a crossroad and intense debate is centered around questions like what would be the future of the small enterprises? How these enterprises can survive in the international trade arena?
What role can the government play in making these SMEs more competitive? In this context, it is important to re-look into the basic issues of SMEs, past, present and future prospects, especially in the policy framework. Today, small and medium industry occupies a position of strategic importance in the Indian economic structure due to its significant contribution in terms of output, exports and employment. The small scale industry accounts for 40% of gross industrial value addition and 50% of total manufacturing exports. More than 3.2 million units are spread all over the country producing about 8000 items, from very basic to highly sophisticated products. The SMEs are the biggest employment-providing sectors after agriculture, providing employment to 29.4 milllion people. However SMEs, which constitute more than 90% of total number of industrial enterprises, are now facing a tough competition from their global counterparts due to liberalization, change in manufacturing strategies, technological changes, and turbulent and uncertain market scenario. This contribution is despite the sector being exposed to intensified competition since liberalisation of Indian economy in 1991. Small industry in India has been confronted with an increasingly competitive environment due to: (1) liberalisation of the investment regime in the 1990s, favouring foreign direct investment (FDI); (2) the formation of the World Trade Organisation (WTO) in 1995, forcing its member-countries (including India) to drastically scale down quantitative and non-quantitative restrictions on imports, and (3) domestic economic reforms. The cumulative impact of all these developments is a remarkable transformation of the economic environment in which small industry operates, implying that the sector has no option but to 'compete or perish'. This paper is an attempt to discuss the following questions:
Why should global and national policy developments affect small industry in India, and how? What are its implications? How far has small industry been able to cope with the present competitive environment? What are the future prospects of small industry in India in the era of globalisation? What steps need...