A Study of Effectiveness of Firms in Changing Policy Environment

ISBN - 978-93-81583-46-3
A Study of Effectiveness of Firms in Changing Policy Environment (With Special Reference to Small Scale Industries in UP and Assam)
Dr. Ambalika Sinha1, Sarika Yadav2 1 Assistant Professor, 2Lecturer 1 Department of Humanities and Social Sciences, Motilal Nehru National Institute of Technology, Allahabad 2 United Institute of Management, Allahabad 1 ambalika.mnnit@gmail.com, 2yadavsarika@yahoo.co.in
National Conference on Emerging Challenges for Sustainable Business 2012 714
A Study of Effectiveness of Firms in Changing Policy Environment
Abstract
A Study of Effectiveness of Firms in Changing Policy Environment (With Special Reference to Small Scale Industries in Uttar Pradesh and Assam) (A Pilot Study)
Small Scale Industries have been considered as a powerful instrument for achieving accelerated Industrial growth and creating productive employment opportunities in an economy. In recent years, the competitive potential of Small Scale Industries has been recognized and certain attraction were seen in Small enterprises that small enterprises are more flexible and dynamic and are in better position to adopt and respond to sudden changes at a time when markets are more volatile and competitive than ever before. The changing world market scenario accelerated the need for the removal of protection in a planned manner. The policy focus shifted from protection to promotion. Government have been introducing and implementing accumulation of policies and programmes aimed at promoting small Industries. The aim of this study is to assess the competitiveness of Small Scale industries in the light of policy environment created by policy maker. In this study an attempt is made to contribute to the understanding of objectives of Small Scale industries and various dimensions of constraints affecting their behavior .Further an attempt is made to provide a comparative data of policies differences and its effect on Small Scale Industries in plains and hilly area, Role of government for promotion and protection of Small Scale Industries in Uttar Pradesh and Assam has been explored. All the data has been collected through primary and secondary sources. Primary data was collected from Entrepreneurs and owners of Small Scale Industries in Uttar Pradesh and Assam. The Industries have been grouped into three segment that is textile industries, Timber and woods Industries, and handloom industries.60 industries were selected on the basis of having three year of existence and investment limit of more than 25 lakh. All the collect data have been analyzed with the help of various statistical tools, and it was found that Government policies are conductive to development and growth of Small Scale Industries. This paper is based on the sub theme of the conference Entrepreneurship Development. Key Words: Entrepreneurship, Small Scale Industry, policy environment, accelerated growth, MSMEs, Effectiveness
Introduction
Small and Medium Enterprises (SME) occupy the place of strategic importance in Indian economy in view of its significant contribution to employment, production and export. However, it was observed that, Small and Medium Enterprises in India find themselves in an intensely competitive environment due to globalization, domestic economic liberalization and dilution of sector specific protective measures. The World Trade Organization has also forced the member countries (including India) to drastically scale down their restrictions on imports. Due to the increased competitive force in the globalized market, it is important for a small business to know their customers, have open lines of communication, provide quality service and offer competitive price to maintain market share. Research Questions: How various supportive and promotional policies of Government the Performance of Small Scale industries? What is the SWOT of Indian textile industries? What are the SWOT of Indian timber and woods industries? Does Government policy affect the efficiency of firms and results in superior firm performance? What are the factors that increase the effectiveness of Small Scale industries? Objectives of the study Literature study revealed that SMEs have vital role in the growth of Indian economy. However the performance of SME has come down in last few years. Government has taken various promotional and protective measures to increase the efficiency of the Small scale industries in india.Limited literature was found in Indian context about the impact of government policies on the performance of Small scale industry. Therefore it was fascinating to know about the impact of policies on Small scale industries in India. Based on the review of literature in the area of government policies and small scale industry specific research objectives were framed, which are as under: 1. To assess the credibility of existing support programme for Small scale industries
affect
2. To evaluate and measure the impact of Government policies on the beneficiaries 3. To study the global perspective of the SSI policies frame work in selected countries 4. To develop a strategic model for the growth of Small scale industries
Summary of Research Questions and Research Objectives: Sl. No. 1 How Research Questions various supportive Research Objectives and To evaluate and measure the impact of
promotional policies of Government Government policies on the affect the performance of Small beneficiaries
Scale industries 2 What are the SWOT of Indian textile, To assess the credibility of existing handloom and timber and wood support programme for Small scale industries 3 industries
Does Government policy affect the To study the global perspective of the effectiveness of firms and results in SSI policies frame work in selected superior firm performance countries
What are the factors that increases To develop a strategic model for the the effectiveness of Small Scale growth of Small scale industries industries
The main issues covered in the study are as follows: (i) Globalization has created competitive environment for the SME and the protection of the SME are limited. (Subrahmanyam, 2005; Lee and Mariam, 2007; Prater and Ghosh, 2005; Julien et al., 1994). (ii) The awareness of the policy and programmes of the Government is a factor towards the smooth adoption of technology in SME (Narayana, 2006). (iii) The support from the Government in terms of infrastructure, tax rebate, support for the adoption of any new system etc. can be proved to be very helpful to meet the expectations of the SME (Subrahmanyam, 2005; Narayana, 2006) Policy of Indian Government for SMEs: In order to protect, support and promote small enterprises, and also to help them become selfsupporting, a number of protective and promotional measures have been undertaken by the Government. While most of the institutional support services and some incentives are provided by the Central Government, others are offered by the state Governments in varying degrees to attract investments and promote small industries with a view to enhance industrial production and to generate employment. Government of India makes specific policy for the SME. The present policy of the Government of India is briefly given below: (i) Reservation Policy: In order to provide assistance and support to Micro & Small Enterprises for marketing their products, under the present Government Purchase and Price Preference Policy for Micro & Small Enterprises, Government of India has been extending various facilities to the MSME registered with National Small Industries Corporation (NSIC) under its Single Point Registration Scheme. In addition to the facilities, 358 items are also reserved for exclusive purchase from MSE sector. The present policy of encouraging growth of micro and small scale industries is based on several promotional measures - one of these is reservation of products for exclusive manufacture in the small scale sector in areas where there is techno-economic justification for such an approach. Large/Medium units can,
however, manufacture such of their production.
reserved items provided they undertake to export 50% or more
(ii) Licensing Policy: The major impact of liberalization and globalization of economy, which started in India in July, 1991, was to do away with the Compulsory Licensing. Now four industries are reserved for the Public Sector and only six industries fall under the compulsory licensing. In case of the small units which employ less than 50 workers with power or less than 100 workers without power are not required to obtain any license under Compulsory Licensing Provisions. (iii) Trade Policy: Export Promotion from Small Scale Sector has received utmost priority of the Government. Every Policy formulated for achieving growth in exports have a number of incentives to small scale exporters so as to maximise export earnings. Such incentives include: (a) Free import of capital goods /raw material and other essential inputs and in certain cases duty free or with concessional rate of Custom Duty, so as to ensure higher production for exports. (b) With a view to make Indian products competitive in the world markets, a large number of incentives were provided to the exporters from time to time. Such incentives include refund of duties paid on the raw material used in export production by a system of DutyDraw-Back, Pre and Post shipment Credit to the exporters at concessional rate of interest, etc. (c) Export Policy of the Government has remained liberal as there were hardly any restrictions on export of items from small scale sector. Export Procedures have been simplified from time to time so as to promote exports from the small scale sector. The efforts of the Government have always been to regulate and simplify procedures so as to create a congenial environment for the exporting community. (iv) Foreign Direct Investment Approval: An industrial undertaking, i.e., a company with interests in industry can invest up to 24% equity in a SSI unit. If the equity goes beyond 24%, the industrial unit loses its SSI status. There is no restriction on the extent of equity that can be held by a Non-resident Indian (NRI) as an individual/partner in a SSI unit. Investors need to file an application with the Reserve Bank of India (RBI) in the prescribed format and approval is ordinarily granted within 15 days. For foreign investment outside the automatic route, clearance has to be obtained from Foreign Investment Promotion Board (FIPB). For setting up a unit in an
Export Processing Zone (EPZ), application has to be filed with the Development Commissioner of the concerned EPZ.Under automatic procedures, foreign technology agreements are being permitted in respect of industries that are designated as high priority industries. (v) Excise and SSI: Various incentives in the shape of exemptions from payment of excise duties and licensing registration controls have been extended to small scale units producing excisable goods. This has been the long standing and consistent policy of the Government to encourage the small scale sector and to improve their competitive position vis--vis the large manufacturing units. Government of India has provided a major relief by granting full exemption from the Payment of central excise duty on a specified output and thereafter slab-wise concessions of certain specified items in 1978. A general Small Scale Exemption Scheme in respect of specified commodities was introduced in 1985. The same was replaced in 1986 and subsequently amended from time to time by a number of notifications in 1993. With effect from 1-4-1994, Gate-Pass System was replaced by manufacturer invoice to cover clearances of goods as the duty-paying document. In the Budget 1995-96, the limit of INR 20 million turnovers for a small scale unit to be eligible to exemption was revised to INR 30 million. SSI units whose clearances did not exceed INR 3 million in a financial year were exempted from payment of excise duty. SSIs are also not required to maintain any statutory records such as daily stock account of production and clearances, raw material account, personal ledger account, RG-23A account, RG-23C account, stock register of goods sent for processing of job-work, invoice records etc. Their own records are adequate for excise purposes. The exemption limit was raised to INR 5 million in the budget 1998-99 and further to INR 10 million in 2000. SSIs have been allowed to pay duty on a monthly basis w.e.f 1-4-1999. (vi) Credit Policy: Of all the elements that go into a business, credit is perhaps the most crucial. The best of plans can come to naught if adequate finance is not available at the right time. MSEs need credit support not only for running the enterprise and operational requirements but also for diversification, modernization/up gradation of facilities, capacity expansion, etc. In respect of MSEs, the problem of credit becomes all the more critical whenever any episodic event occurs such as a large order, rejection of consignment, inordinate delay in payment, etc. In general, MSEs operate on tight budgets, often financed through owners own contribution, loans from
friends and relatives and from some bank credit. Government of India recognized the need for a focused credit policy for MSEs in the early days of promotion of MSEs. This in turn led to priority Sector Lending. Credit to the MSE sector is ensured as part of the priority sector lending by banks. Banks are required to compulsorily ensure that specified percentage (currently 40% for domestic commercial banks and 32% for foreign banks) of their overall lending is made to priority sectors as classified by Government. These sectors include agriculture, small enterprises, retail trade, etc. North Eastern Industrial Policy The salient features of the Policy are as follows: 1. Expenditure on Growth Centres, up to Rs. 15 crores would be me through Central assistance. 2. Funding pattern for Integrated Infrastructure Development Centres changed from 2:3 between Government of India and SIDBI to 4-1. The Government of India funds would be in the nature of grant. 3. Transport subsidy scheme has been extended by 7 years upto 31.3-2007 and amount to be disbursed through North Eastern Development Finance Corporation. 4. Industries located in the Growth Centres would be given capital investment subsidy at the rate of 15% on Plant & Machinery, subject to a ceiling of Rs. 30 lakhs. 5. Growth Centres & IIDCs become tax-free zones for, income tax and excise duty for a period of 10 years. Certain high growth potential industries have also been given the taxfree status irrespective of the location in the North-East. 6. An interest subsidy of 3% on the working capital loans would be provided for a period of ten years after the commencement of production. 7. Comprehensive Insurance Scheme for new industrial units has been put in place. Government approved the new Industrial Policy and Other Concessions in the North Eastern Region which inter envisage the following:A. Development of industrial infrastructure: Currently the funding pattern for the growth centres envisages a Central assistance of Rs. 10 crores for each Centre and balance amount to be raised by the State Government. Government
has approved that entire expenditure on the growth centres would be provided as Central assistance, subject to a ceiling of Rs 15 crores. B.Transport subsidy scheme: The Transport subsidy scheme will be extended further in so far as N.E. States are concerned, for a period of another 7 years i.e. upto 31st March, 2007 being coterminous with the Tenth Five Year Plan on same terms and condition as are applicable now. C. Fiscal Incentives to new industrial units and their substantial expansion: (i) Government has approved for converting the growth centres and IIDCs into a total tax free zone for the next 10 years. All industrial activity in these zones would be free from income tax, excise, for a period of 10 years from the commencement of production. State Governments would be requested to grant exemptions in respect of Sales Tax and Municipal Tax. (ii) Industries located in the growth centres would also be given capital investment subsidy at the rate of 15% of their investment in plant and machinery. Subject to a maximum ceiling of Rs 30 lakhs. (iii) The commercial banks and the North East Development Financial Corporation (NEDFI) will have dedicated branches/counters to process applications for term loans and working capital in these centres. While sanctioning assistance NEDFI and commercial banks would take a liberal view of the debt: equity ratio. (iv) An interest subsidy of 3% on the working capital loans would be provided for a period of ten years after the commencement of production. The working capital requirements would be worked out as per the Nayak Committee. (v) Similar benefits would also be extended to the new industrial units or their substantial expansion in other Growth centres or IIDCs or industrial estates/parks/export promotion zones set up by the States in the BE region New industrial units or their substantial expansion in the specified industries (as at Annex A) located outside these growth centres and other identified locations would also be eligible for the similar fiscal incentives.
(vi) It is approved that the transport subsidy budget may be released by a designated agency on the basis of the recommendations of the S.L.C. It is proposed that NEDFI may be designated as the nodal agency for release of transport subsidy in N.E. States. F. Development of village and small industries sector: Weavers Service Centres (WSCs) in NE region and Indian Institute of Handloom Technology at Guwahati would be suitably strengthened to provide technology and training support to the weavers. National Handloom Development Corporation will give priority in supply of hank yarn to the NE region. All the four verities of silk would be covered under the Mill Gate Price Scheme. Priority would be given to the N.E. region in scheme of setting up of market complexes and permanent exhibition facilities. A new design centre for development of handicraft would be setup in NE region. To upgrade the skill of artisan, advance training programme through master craftsmen would be organized. New emporia will be set up and financial assistance for renovation of existing emporia will be provided. The Central Silk Board will give priority to NE region in implementation of its schemes.
Research Model: Research model is based on the twelve dependent variable that are technical effectivensss,financial performance, transport facility, performance in international market, permission or clearance required, sources of financial capital resources, obstacles to firms financing, poor credit facility, constraints on operation and growth and taxes and regulatory constraints, and one dependent variable that is effectiveness of firms.
A Stu of Effecti udy iveness of Fir in Changing Policy En rms nvironment
Research Model
Hypothe esis Government policies are not conduciv to growth and develo G p ve h opment of sm enterpris mall ses SSIs are not capable of ac c chieving inte ernational co ompetitivene in a free market ess Growth of sm enterpr G mall rises are not attributed t the succe t to essful implementation o the of Government policies G p The T performa ance of SSIs does not ind dicate their i international competitive l eness Performance of SSIs in domestic mar increase due to sup rket es pport provide by the Go ed ovt.
Research Methodology R M
The r research stud is based on question dy nnaire survey method, da collected from secon y ata d ndary sourc The seco ces. ondary data i collected from publish as well a unpublish sources o the is hed as hed of
National Conference on Emerging Challenges f Sustainable Business 2 g for 2012 724
organ nizationals internal reco i ords, manua files and brochures. Data publi als, d . ished by va arious books, journals, organization manuals on the subj along w the numb of newsp o nals s ject with ber paper ings and jou urnals. clippi
Question nnaire desig gn: Question nnaire was de esigned for o owner/top m manager of th SME base on the va he ed ariables ident tified in the res search mode The items in the questionnaire w el. s were multiple choice typ and five point e pes Linkert s scale was used. The q u questionnaire has been validated u e using pre-tes pilot test and st, t construct validity of data. The responses re ts eceived wer analyzed u re using Statist tical Packag for ge Social S Science (SPS SS). The re esponses on questionna n aire were ta abulated and tested for the reliability and validit using Cron y ty nbachs Alp and Conf pha firmatory Fa actor Analysis. Findings s: (A) G Gender of Respondent R
tion: Gende profile: it was found i the analys that out o total 60 re er in sis of espondents 5 are 55 Descript male and 5 were fem d males, so it ca be unders an stood that ma aximum are male who ar re The owner of Small Scale indust S tries
Educational Qualificati l ion (B) E
Descript tion: Educa ation profil As show in the analysis be le: wn elow, the e education of the f responde up to cla 10th is 12 to class1 is 20, gra ents ass 2,up 12 aduate is 21,p graduati is 5. post ion
(C) R Residents of Responden nt
(D)Previ ious Experie ence
Descript tion: Previo Experien it was f ous nce: found in the analysis tha out of tota 60 respondents at al 30 respon ndent has no experience,22 has less than 1 year experience. o (E)Motiv vating facto ors
Descript tion: Major motivating factors are the attendin FDP of th governm ng he ment schemes and s other factors i.e. fam support a financing support etc mily and c. (G)Name of Busines ss
Reliability Analysis Table (Chron Bach alpha value): Reliability Analysis Table Dependent Variable S. N o 1 2 3 4 5 6 7 8 9 Firms technical 2.1-2.11 effectiveness Financial 3.1-3.10 performance Transport facility 4.1-4.11 Performance in international Market Permission or clearance required Sources of financial capital resources Obstacles to firms financing 5.1-5.13 6.1-6.14 7.1-7.7 8.1-8.5 .7756 .8518 .8658 .7037 .9282 .8778 1. .7337 .8100 Firms performance 1.1-1.20 .6376 S. No Variable No. of Question Alfa Value Variable No. of Question Alfa Value Independent Variable
Poor credit facility 9.1-9.5
Constraints on operation and growth 10 Taxes and regulatory constraints 11 Quality of Utility services 12 Reason for delay/modernizati on
10.1-10.10 .7518 11.1-11.7 12.1-12.9 .5346 .8288
13.1-13.10 .8080
Despite some limitations, Cronbach's coefficient alpha remains the most widely used measure of scale reliability. Alpha value .5 > is unacceptable and .9 is consider to be excellent. Alpha coefficients ranged from .53 to .92 for effectiveness of firms. It shows that all the values are acceptable in the study.
Conclusion: Our analysis indicates that Small scale Units are contributing in the growth of Indian economy by increasing the employment and contributing towards the GDP. Although Government is providing various supports for the promotion of SSIs in the country yet it is facing threats due to globalisation. Globalisation has increases the competition for the SSIs by allowing Multinational Corporation in to India. In order to face the competition and to sustain its competitive advantages the Small Scale Units need to improve their productivity and quality. With improved quality and high performance the Small Scale Sector can increase its position in the global market. The way to unfetter the SSIs in the countries to bring out a policy of easy credit, marketing, tax free period, improvement in various dimensions of technology and they must cope up with the changing trends in the technology. References: 1. Bhalla, A.S. (1996). Facing the Technological Challenge. London: Macmillan Press Ltd. 2. Bagchi Amaresh, Rao R. Kavit, Sen Bulbul, Tax Breaks for the Small Scale Sector: An Appraisal, New Delhi 3. Bhavani, T.A. and Tendulkar, S.D. (2000). "Determinants of Firm-level Export Performance:A Case Study of Indian Textile Garments and Apparel Industry" in the Journal of International Trade and Economic Development. 10 (1, March): 65-92 4. Desai Vasant(1983) Problems and Prospects of Small Scale Industries in India,Himalaya publishing house,Mumbai 5. Kumar, Anil (2000). "World Trade Organisation Agreement: Its Impact on Small Scale Sector" in Laghu Udyog Samachar, XXIV (6-8) Jan - March: 28-39 6. Panagariya Arvind, Building a Modern India, Columbia University 7. Rohini Hensman, The Impact of Globalisation on Employment in India and Responses from the Formal and Informal Sectors, CLARA Working Paper, No. 15Amsterdam, 2001 8. Raju B. Yerram,Natraj Mohan P.R.,mall and medium enterprises in India,Textmann publication,July 2008 9. Ramappa B. T. & Basavaraja M.G.,Policy Changes and Its Impact on Small Scale Industries in India,International Journal of Management Research and Technology vol.3,Number 1 June 2009 page 281-291
10. Tendulkar, S.D. and T.A. Bhavani (1997). Policy on Modern Small Scale Industries: A Case of Government Failure in the Indian Economic Review, 32 (1), January-June: 3964 11. T.A. Bhavani Small-scale Units in the Era of Globalisation:Problems and Prospects 12. WTO (1998). Trade Policy Review: India 1998. 13. Handbook of Industrial Policy and Statistics,2001, Office of the Economic Adviser, Ministry of Commerce and Industry, New Delhi(http://eaindustry.nic.in/handout.htm). 14. Report on Sample Survey of Registered SSI Units, 1999-00, Office of the Development Commissioner (Small Scale Industries), Ministry of Small Scale Industries, New Delhi 15. Report of the Study Group on Development of Small Scale Enterprises,2003-04 Planning Commission of India, New Delhi 16. Report of the Study Group on Development of Small Scale Enterprises,2009-10 Planning Commission of India, New Delhi 17. Reserve Bank of India, 1992. Institutional Credit Facilities for the Small Scale Industries Sector, New Delhi. 18. Reserve Bank of India(1997) Report of the expert committee on Small Enterprises, supplement to RBI bulletin

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ISBN - 978-93-81583-46-3

National Conference on Emerging Challenges for Sustainable Business 2012 714