VILLAGE AND SMALL INDUSTRIES
VILLAGE and small industries in their different aspects are an inte- gral and continuing element both in the economic structure and in the scheme of national planning. The primary object of developing small industries in rural areas is to extend work opportunities, raise incomes and standard of living and to bring about a more balanced and integrated rural economy. Inevitably, in rural areas, the traditional industries have to be given immediate consideration. As the rural economy develops, technical changes will take place in different fields and correspondingly, the pattern of rural industrialisation will also change from simple crafts meeting elementary needs to small industries based on steadily improving techniques and designed to satisfy the needs of a more advanced character. These developments will necessarily be spread over a long period; in the mean time, support through legislation and various positive measures of organisa- tion and assistance for the existing village industries is absolutely vital to the stability and growth of the village economy. Thus, the sector of village and small industries is not to be viewed as a static part of the economy, but rather as a progressive and efficient decen- tralised sector which is closely integrated, on the one hand, with agriculture and, on the other, with large-scale industry. The main considerations which influence the priority given to village and small industries in rural and industrial development programmes were set out at length in the first Five-Year Plan. During the past three years, with the setting up of various special organisations, the ground has been prepared for programmes of larger magnitude.
PROGRESS IN TIME, FIRST PLAN 2. Two important steps taken during the first plan period were the setting apart by the Central Government of substantial finance for the development of village and small industries and the building up of a network of all-India Boards to deal with the problems of the hand- loom industry, khadi and village industries, handicrafts, small-scale industries, sericulture and the coir industry. Greater attention on the part of the Central and State Government and the expanding activities of the all-India Boards have increased production and employment in a number of industries. The bandloom industry, which was in a difficult situation at the commencement of the plan, has received considerable support Production of handloom cloth has in- creased from 742 million yards in 1950-51 to 1354 million yards in 1954-55, and is estimated to be of the order of 1450 million yards in 1955-56. The value of khadi, according to the figures furnished by the Khadi Board, increased from Rs. 1.3 crores in 1950-51 to over Rs. 5 crores in 1955-56, when its total production stood at 34 million square yards. In many of the remaining industries, much of the ini- tial expenditure has been on research, marketing organisation etc. The setting up of four Regional Small Industries Service Institutes with a number of branch units to provide technical services, advice and assistance is a step from which much may be expected in the fu- ture. The All-India Khadi and Village Industries Board has set up a technological institute for village industries and has also estab- lished central and regional institutions for the training of workers. The All-India Handicrafts Board has assisted research in new designs and patterns and in improved processes, organised a survey of market- ing of handicrafts and has arranged for exhibition of handicrafts both within the country and abroad. The Coir Board has promoted the forma- tion of cooperative. societies for the collection of husk and the production and supply of yam. Twelve State Finance Corporations have been established, and rules and procedures governing the administra- tion of State Aid to Industries Acts have been liberalised.
3. Another important step has been the Government's acceptance in principle of the Stores Purchase Committee's recommendation that certain classes of stores should be reserved exclusively for purchase from village and small industries and that price differentials should be allowed to them over the products of large-scale industries. The value of purchases made from cottage and small-scale industries by the Directorate General of Supplies and Disposals has increased from Rs. 66 lakhs in 1952-53 to Rs. 105 lakhs in 1954-55. A number of emporia and sales depots for handloom, handicrafts and village industries have been established during the first plan period. The marketing of the products of small-scale industries is expected to receive an impetus as a result of the establishment of the National Small Industries Corporation. The main functions of the Corporation will be to orga- nise production for meeting Government orders, to assist the manufac- ture of parts and
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components by small units so as to fit in with the production of the corresponding large units and to arrange the supply of machines on hire-purchase terms.
4. In the First Five Year Plan the principle of common produc- tion programmes for related large scale and small-scale industries was recommended The possible elements of a common production programme were stated to be reservation of spheres of production, non-expansion of capacity in large-scale industry, imposition of a cess or excise on products of large-scale industries and positive measures for the supply of raw materials, equipment and technical and financial assist- ance to the small units. One or more of these elements have been adopted as the basis of measures taken for the promotion and assist- ance of a number of small industries. The production of certain varieties of cloth has been reserved for the handloom industry and an excise duty has been levied on the production of large mills so as to build up a fund from which financial assistance is being given to hand-loom and khadi industries. All applications for substantial expansion of existing large units or for the establishment of new large units in leather footwear and tanning industries are examined in the light of their possible effects on the cottage and small-scale sector. An excise duty has also been levied on the large-scale leath- er footwear industry. In the match industry, a new category of 'D' class factories has been introduced, and the rebate of excise duty in respect of these factories has been enhanced. Printing of cloth by large mills has been limited to their best years output during the period 1949-54, and expansion of the capacity of large units for garment-making has been restricted. A differential excise duty has been imposed on the washing soap industry and a subsidy is given for neem and non-edible oils used in making soap. In regard to a number of other industries also, including certain types of agricultural implements, furniture-making, sports goods, slates and pencils, bidi, writing inks, chalks and crayons and candles, it has been decided to reserve further expansion of production for small units.
5. The importance of setting up industrial cooperatives both at an agency for developing village industries and as an essential chan- nel for extending financial assistance to village artisans was empha- sised in the first five year plan. Progress has been uneven both as between different industries and as between different regions and States. In the handloom industry, however, as explained later, there has been an encouraging advance.
OBJECTIVES AND BASIC POLICIES IN THE SECOND PLAN 6. The Village and Small Scale Industries Committee., The programme for village and small industries to be carried out during the second plan period is considerably larger than in the first. Pro- grammes for the second plan and problems connected with their imple- mentation have been recently reviewed by a committee-the Village and Small Scale Industries (Second Five Year Plan) Committee, commonly known as the Karve Committee, which was appointed by the Planning Commission in June, 1955. In making its proposals the Committee kept three principal aims in view, namely,
(1) to avoid as far as possible, during the period of the second plan, further technological unemployment such as occurs specially in the traditional village industries;
(2) to provide for as large a measure of increased employment as possible during the plan period through different Village and small industries; and
(3) to provide the basis for the structure of an essentially decentralised society and also for progressive economic development at a fairly rapid rate.
The Committee, however, envisaged that even in the traditional village industries, to the extent immediately possible, technical improvements should be adopted, and for the future there should be a regular pro- gramme or gradual transition to better techniques. At the same time, where new capital investment had to be made it should be, as far as possible, on improved equipment, the improvement being in some cases in the nature of additions to or adaptations of existing equipment.
7. The concept of a decentralised economy is not necessarily related to any given level of technique or mode of operation. What it implies is that technical improvements will be adopted in such a manner and to such extent as will permit comparatively small units which are widely scattered or dispersed throughout the country to undertake economic activities. On this view, whatever the villagers can undertake by way of improved industry in their own village should be organised on a village basis. The Committee considered that the progressive expansion and modernisation of rural industry could be best brought about by the-establishment of small industrial units, along with the necessary services in large villages and small towns located all over the country. Industrial expansion on the periphery of large towns could scarcely be said to reduce the concentration of industry. What was needed, therefore, was a pattern of industrial activity in which a group of villages converging on their natural industrial and urban centre form a unit or, to use the Committee's expression, "a pyramid of industry broad-based on a progressive rural economy". Economies of scale and organisation should also be secured for small units through organised cooperative working, as in rural community workshops.
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8. In the Industrial Policy Resolution of 30th April, 1956, reference has been made to the policy of supporting cottage and vil- lage and small-scale industries, which the State has been following by restricting the volume of production in the large-scale sector, by differential taxation, or by direct subsidies. It is stated that while such measures will continue to be taken, whenever necessary, the aim of the State policy will be to ensure that the decentralised sector acquires sufficient vitality to be self-supporting and its development is integrated with that of large-scale industry. The State will, therefore, concentrate on measures designed to improve the competitive strength of the small-scale producers. For this it is essential that the technique of production should be constantly im- proved and modernised, the pace of transformation being regulated so as to avoid, as far as possible, technological unemployment. Lack of technical and Financial assistance and suitable working accommodation and inadequacy of facilities for repair and maintenance are among the serious handicaps of small-scale producers. The Resolution mentions in this connection that a start has been made with the establishment of industrial estates and rural community workshops to make good these dificiencies. The extension of rural electrification and the avail- ability of power at prices which the workers can afford will also be of considerable help. Emphasis is laid in the Resolution on the organisation of industrial cooperatives which greatly assist many of the activities relating to small-scale production. Such cooperatives should be encouraged in every way and the State should give constant attention to the development of cottage, village and small-scale industries.
9. Common Production Programmes.- The description common production programmes' was suggested in the First Five Year Plan as a convenient way of expressing the desirability of considering, while formulating programmes of development' for different branches of industry, the respective contributions which large and small units could make towards the total requirements of the community and the measures which should be taken to enable small industries to fulfil the targets proposed for them. These measures fall broadly into two groups, namely,
(i) those intended to provide a degree of preference or assurance of a market for small units, and
(ii) those intended to provide positive assistance through supply of raw materials, technical guidance, financial assistance, training, reserach, organisation of marketing, etc.
The First Five Year Plan visualised that one or more of three main steps might be needed in furtherance of a common production programme:
(1) reservation or demarcation of spheres of production. (2) non-expansion of the capacity of a large-scale industry, and
(3) imposition of a cess on a large-scale industry.
These proposals are of great importance for traditional village industries whose immediate prospects depend upon the manner in which broad policies are carried into effect. Reservation or demarcation of spheres of production may be specially helpful for small-scale industries. These units were classified in the First Five Year Plan into three categories, namely,
(1) those in which small-scale production has certain advantages and is not affected by large-scale industry to any great extent,
(2) those in which small-scale industry is concerned with the manufacture of certain parts or with certain stages of production in a manufacturing process in which the predominent role is that of a large-scale industry, and
(3) those in which small-scale industry has to meet the competition of the corresponding large-scale industry.
For building up a decentralised sector in modern industry, within the limits of technical possibilities, demarcation of spheres of production can be of material assistance to small units which are either competitive with large units in the manufacture of particular articles or should be integrated with large units in terms of stages of production or manufacture of ancillary parts. This approach has to be adopted in appropriate fields whether the large units are in the public sector or in the private sector.
10. Proposals for non-expansion of the capacity of a large-scale industry have to be considered from two different points of view. The first is the extent to which such a measure would enlarge the market for small units. It may sometimes be that for lack of organisation or other similar reasons full advantage may not be taken of the available market. The second aspect to consider is the volume of production of a commodity that may be required in the economy. In this connection the likely trends of future demand are specially relevant during a period of development in which considerable public and private outlay will occur. Within the limits set by the need to avoid shortage of goods on the one hand, and the extent to which production in small units can be
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organised effectively to take advantage of a larger market, in any individual case, on the other the balance of public advantage will determine whether and at what level the capacity of a large-scale industry should be limited. In applying the policy there is need for review from time to time in the light of changing economic conditions. It is therefore necessary that licensing of industries, which already applies to industries listed in the schedule to the Industries (Development and Regulation) Act 1951, should also be extended to the field of agricultural processing, especially to rice mills. Appropriate legislation for this purpose should be enacted.
11. In a cess or an excise duty on the production of a large industry, as the Village and Small-Scale Industries Committee pointed out, the objects are, firstly, to raise funds from the consumers of a product; secondly, to take away a portion of the additional profits accruing to large units in consequence of a limit on expansion of capacity or production; and thirdly, to provide for a limited price differential in favour of small units. The imposition of a cess or an excise duty in appropriate situations is a well-recognised fiscal device and each case has to be considered on its merits. The question of subsidies which are sometimes proposed raises issues of a different character. The Village and Small Scale Industries Committee did not generally express itself in favour of new measures for introducing subsidies on production or rebates on sales. It felt that the cost of schemes of protection afforded to any activity should be readily measurable and schemes of protection for normal economic activity should be so planned that they could be withdrawn in a reasonable time. There are a few limited exceptions which the Committee has sug- gested as, for instance, the proposal for a small subsidy for improved equipment used in the hand-pounding of rice. In the proposals of the Village and Small Scale Industries Committee, for all the village industries taken together, the total amount of production subsidy envisaged is estimated to be about Rs. 8 crores. Rebates on the sale of handloom and traditional khadi are estimated to involve expenditure respectively of about Rs. 20 crores and Rs. 7 crores.
12. The devices for giving effect to the idea of common produc- tion programmes which have been discussed above represent only a part of the totality of action to be taken for the development of village and small industries. They are intended ordinarily to afford time and opportunity to the sector of village and small industries to gain the necessary strength to develop on its own. They have to be supplement- ed, wherever feasible, by common marketing arrangements through coop- erative organisations in which the State may participate. A great deal of attention must be given to ensuring that the positive measures of organisation and assistance succeed and succeed without loss of time.
13. Industrial Cooperative and Associations.- It is common ground that in village and small industries co-operatives have to be developed to the greatest extent possible. The experience of the Handloom Board in encouraging the formation of weavers' cooperatives illustrates some of the conditions needed for the growth of co- operation in small industry. The number of handlooms included in the co-operative fold increased from 626,119 in 1950-51 to 788,664 in 1953-54 and to 878,984 in 1954-55 and was expected to reach a million by the end of the first Plan. For the formation of co-operatives the Handloom Board has provided assistance to weavers in share capital and in working capital from 75 to 87 1/2 per cent of the share value is contributed as loan by the Government and the balance is provided by the weaver. Working capital will be provided at uniform rates of Rs. 200 per cotton loom and Rs. 500 per silk loom. Weavers' cooperative organisations at different levels are federated so that there are central agencies available for supplying raw materials, offering technical advice, arranging for credit from co-operative sources, and providing better marketing facilities. In the coir industry, 120 primary coir marketing, societies, 22 husk co-operative societies and 2 central coir marketing cooperative societies have been formed. In some states, progress has been made among particular classes of arti- sans, as among tanners and leather workers in Bombay, Uttar Pradesh and Punjab, and among palm gur manufacturers in Madras.