The Ascent and Decline of Reservation in Indian Small Scale Industries: Evolution of the Policy Environment

Abstract

Small Scale sector has occupied the centre stage in Indian industries right after independence. While in the classical Gandhian thinking small scale industries plays a key role, in planning paradigm too, there was an emphasis on small scale industries that can be traced to its perceived higher employment intensity. Interestingly, the increasing emphasis on small scale industries in India has been accompanied by an increase in the number of reserved items under small scale industries (SSI). It started with 47 items in 1967 and came to cover 836 categories in 1998! With the initiation of economic liberalization during the 1990s, the list of reserved categories of SSI dwindled to around 20 by end of 2010. The present paper is a narrative account of this policy evolution. We find that while the number of reserved categories under small scale industries has come down the domain of small industries got extended to SME and finally to MSME. Besides, various preferential routes to factor market have been extended to the small industries sector. As an example, bank finance to the small scale sector is counted for the stipulated lending under priority sector. While these twin policy measures of de‐reservation and preferential treatment seem to be in the right direction at the current juncture, it remains to be seen to be seen how long such preferential treatment should continue.