Chapter-1 Introduction

Chapter-6

Although not defined in any official document of Indian Government but by connotation Rural Non Farm Sector (RNFS) can be defined as the enterprises and artisan activities which would be classified as household, decentralized, tiny, medium and small scale enterprises involved in production/ manufacturing, processing, preserving, storing and marketing of goods and/ or engaged in services and agro processing having on providing employment and income to persons residing in rural areas.¹

The non-farm sector in rural India is registering significant growth, both in terms of employment and output comparing to urban areas due to the numerous initiatives being executed by the Central and State governments. The Non-farm Sector has contributed a lot for the development and growth of our country out of the drudgery made through British colonial rule.

After India got independence, there was a need for an all round development of the country. There was a requirement of providing the industrial base, to the country like India, which was having the farm economy. There was a need for heavy as well as small scale industries (SSIS). The establishment of heavy industries required a huge amount of capital and in turn did not provide the employment opportunities to the large mass of people. The employment capital ratio of heavy industries was low. On the other hand there were SSIs which were having the higher employment capital ratio. In the year 1956, planning commission stated that there were 5.3 million unemployed individuals in the country, out of which 2.5 million unemployed were in urban areas and 2.8 million in rural areas. So there was a great need for providing the employment opportunities to the unemployed individuals. The SSIs were capable of solving such problems because of its higher employment capital ratio, as the establishment of such industries required a nominal amount of capital.

Our father of nation, Gandhiji stood for ruralism. He has always visualized that ‘the development of our country lies in the development of rural masses and rural areas’ because they are the backbone of the country and the development of rural areas and rural masses depends on the development of rural industries. He has not used the term ‘rural industry’ as a synonym of cottage/household industry located either in urban/in rural areas. He had used the term ‘rural industry’ only for industries located in rural areas. He was not interested in development of a particular type of industry but in development of rural areas and rural masses so that the cities did not exploit them and therefore emphasized the revival, spread and encouragement of all rural industries.

Among rural industries, he has laid great stress on Khadi industry because in his opinion Khadi was the Sun of the village solar system. The planets were other industries which could support Khadi in return for the heat and substance they derived from it. He was not against science but of its use for exploitation-economic, political and international. He wanted science to help the rural industry.¹ He is also known to have offered ` 1 lakh for a Charkha which could produce at least four times the yarn produced by the traditional one. He wanted science to mitigate the drudgery of the worker in the field or at the factory. During the Gandhian era of freedom movement, Khadi industry gained much in rural areas, throughout the country, both in production and consumption.²

Under his leadership, the Indian National Congress had also adopted that the revival and expansion of old cottage and rural industries and the introduction of new ones would be an important and indispensable means of rehabilitating the industrial sector. As a result, All Indian Village Industries Association was started on the basis of the resolution passed by the Indian National Congress in 1934. The association under the chairmanship of Gandhiji and the secretary ship of Dr. Kumarappa did yeoman service to develop rural industries.

Our first Prime Minister J.L. Nehru was also a great admirer of industrialization but had emphasized on use of modern machines and modern techniques for production. Cottage industry with emphasis on hand spinning, hand-weaving, Khadi, trusteeship etc. were the ideas of Gandhiji to create a self-sufficient economy. Nehru, on the other hand, followed democratic socialism and put emphasis on cooperative movement, massive industrialization, scientific and technological advancement etc. But both have the common objective of development of India. Speaking to the Parliament on December 10, 1963 in reply to the debate on the 3^rd Plan Appraisal, Nehruji said, “I am entirely an admirer of the modern machine and I want the best machinery and the best technique but taking things as they are in India, however rapidly we advance in the machine age and we will do so, the fact remains that large numbers of our people are not touched and will not be touched by it for a considerable time.”

Nehruji was not the only person who had realized the necessity of rural industrialization. Dr. D.R. Gadgil, had also written in this direction: “I conceive rural industrialization to be one of the major economic and social objectives of the plan of economic development. Therefore, it can be achieved only if the entire development plan and, in particular the entire plan of industrialization is framed so as to attain this objective. No substantial results can be achieved, in short run, with the present approach and area of the efforts at rural industrialization; and in the long run, present trends in policy relating to large industry inevitably lead to a highly urbanized and capital intensive modern industry and a poor, non-industrial countryside. I assume that the objective of rural industrialization implies industrialization of the country as widely dispersed at as small at scale, with a high employment potential is compatible with an efficient technique and the requirements of the process of the development.” ¹

Thus the concept of rural industrialization has been promoted and admired by all great political and social leaders for development of India since its independence.

Rural industrialization could play an effective role in rural transformation and in generating balanced socio-economic development through an increase in gainful employment and a rise in income levels. Thus rural industries especially SSI got tremendous policy support from government. The most important feature about SSIs was that they could be established both in urban as well as rural areas. The Government constituted various boards to contribute to meaningful development of village and cottage industries such as; All India Handloom Board and All India Handicraft Board in 1952; All India Khadi and Village Industries Board in 1953 which later in 1957 was converted into the Khadi and Village Industries Commission with autonomous powers; Central Silk Board in 1949; Coir Board in 1953; National Small Industries Corporation in 1955; National Entrepreneurship Development Institutes, National Board for MSME; Forest Corporations etc.

The Government constituted the Ministry of SSIs and Agro and Rural Industries in 1999 which in 2001 bifurcated into Ministry of SSI and the Ministry of Agro and Rural Industries. Subsequent to enactment of ‘Micro, Small and Medium Enterprises Development Act, 2006’ by the Parliament, the President under Notification dated in 2007 has amended the Government of India Rules, 1961. Pursuant to this amendment, Ministry of Agro and Rural Industries and Ministry of SSI were merged into a single Ministry, namely, Ministry of Micro, Small and Medium Enterprises (MSMEs) which defines investment limits for MSMEs and designs policies and promotes/ facilitates programmes, projects and schemes and monitors their implementation to assist MSMEs and helps them scale up.

Due to these initiatives and budgetary support of Government, the MSME sector is continuously flourishing. MSMEs including khadi and village/ rural units are credited with generating the highest rates of employment growth and account for a major share of industrial production and exports. They also play a key role in the development of economies with their effective, efficient, flexible and innovative entrepreneurial spirit. MSMEs contribute significantly to the manufacturing output, employment and exports of the country. Recognizing the contribution and potential of MSME sector, the definitions and coverage of the MSME sector were broadened significantly under the MSMED Act, 2006 which recognized the concept of “enterprise” to include both manufacturing and services sector besides, defining the medium enterprises.

According to Fourth Census there are around 26 million MSMEs operating in India. It is estimated that in terms of value, the sector accounts for about 45% of the manufacturing output and 40% of the total exports of the country. The sector is estimated to employ about 595 lakh persons in over 261 lakh enterprises throughout the country. Further, this sector has consistently registered a higher growth rate than the rest of the industrial sector. There are over 6000 products ranging from traditional to high-tech items, which are being manufactured by the MSMEs in India. It is well known that the MSMEs provide good opportunities for both self-employment and wage employment. Recognizing the importance of MSMEs for promoting rural areas the Chief Minister of Uttarakhand, has also stressed the need for a concrete roadmap to promote MSMEs in the state. He also expressed the urgent need of a comprehensive plan in order to attract investors and to provide a sound industrial base for MSMEs in the state.

As a result of the globalization and liberalization of the economy, MSME units are increasingly called upon to face new and bigger challenges not only from MNCs etc., but also from bigger domestic players. But unfortunately the schemes of government have never been serious to address the basic problems of the sector. RNFS schemes/ projects have failed in achieving the required growth rate in MSME sector. Success of these projects depends upon the efficiency of the project entities/agencies constituted by the Government, which serve as via media between the entrepreneurs (ultimate borrowers) and the financing banks (ultimate lenders). These agencies identify the prospective entrepreneurs, assign suitable non-farm activities to them, prepare project profiles and reports, guide in filling up of loan application form, provide assistance in the form of margin money or subsidy and organize training programmes, etc.

Recognizing the dynamics of the new environment in which MSMEs are operating, the government should focus on providing support in the fields of skill development, credit, marketing, technology and infrastructure. There is an urgent need to emphasize on the basic problems of MSMEs which are the major barriers in their growth across the world in general and in India in particular.

To understand these problems firstly we have to understand the criteria for a unit to be included under MSMEs. The classification of enterprises as MSMEs on the basis of investment limits in plant and machinery (for manufacturing enterprise) and on equipment (for enterprise providing/ rendering services) is envisaged u/s 7(1) of MSMED Act 2006 and notified vide Ministry of MSME Notification No. S.O. 1642(E), dated 29.9.2006, is depicted as follows:

MSMEs of private sector cannot undertake production of items reserved by Indian Government for public sector only (arms, ammunition and allied items of defence equipment, defence aircraft and warships; atomic energy; railway transport; and the substances specified in the scheduled to the notification of the Government in the Deptt. of Atomic Energy number S.O.212(E), dated the 15.03.1995).

The capital investment restrictions are imposed to protect MSMEs, especially in rural areas, from predation by large industry. To encourage the growth of small units, Government has reserved certain products for manufacture in this sector in areas where there is techno-economic justification for such an approach. Large/medium units can, however, manufacture these items provided they undertake to export 50%/ more of their production. As on 10.08.2008, following items are reserved for exclusive manufacture by MSMEs sector:

• 
  Food and Allied Industries: Pickles and Chutneys, Bread, Mustard Oil (except solvent extracted), Ground nut oil (except solvent extracted).
  
• 
  Wood and Wood Products: Wooden furniture and fixtures.
  
• 
  Paper Products: Exercise books and registers.
  
• 
  Injection Moulding Thermo Plastic Product: PVC Pipes, including conduits upto 110 mm diameter, Fittings for PVC pipes.
  
• 
  Other Chemicals and Chemical Products: Wax candles, Laundry soap, Safety matches, Fireworks, Agarbatties.
  
• 
  Glass and Ceramics: Glass Bangles.
  
• 
  Mechanical Engineering excluding transport equipment: Steel Almirah, Rolling shutters, Steel chairs–all types, Steel tables–all other types, Steel furniture–all other types, Padlocks, Stainless steel utensils, Domestic Aluminium utensils.