In the four states of Maharashtra, Delhi, Haryana and Rajasthan, over 70 per cent of small scale industry (SSI) units using improved technology showed substantial quality improvement, according to a study published this April by the Society for Economic and Social Transition. Around 46 per cent indicated reduction in cost of production and more than 20 per cent indicated achievement of competitiveness in domestic and international markets through adoption of improved technology, noted the study, which was done for the Planning Commission.
The study notes that overall output per worker—which is about Rs 4.6 lakh in SSI units—increased to around Rs 5 lakh in units using improved technology but dipped to Rs 3.2 lakh in units without improved technology. It is estimated, however, that around 85 per cent of the total registered SSI units have no access to technical know-how. Unregistered enterprises which comprise the bulk of the unorganised sector are in a worse situation.
Why should such be the case? The government estimated that in 2006-07, there were about 58 million unorganised non-farm sector enterprises in the country, providing employment to 104 million workers. Of this, 94 per cent have investment in plant and machinery of less than Rs 5 lakh. Yet, these enterprises contribute over 31 per cent of the GDP and are spread over vast tracts of rural India as micro industries, khadi and village industries, handloom, handicrafts, coir, leather, apparel, food processing and retail trade.
The number of such units is projected to go up to 71 million by the end of the Eleventh Five Year Plan in 2012. These findings are also significant because micro and small enterprises and traditional industries account for about 55 per cent of India’s exports. Yet, the country’s share in world export was just about 1.1 per cent in 2006, indicating a lack of competitiveness of Indian manufactured goods in the international market—most of which are produced by unorganised enterprises. Around 80 per cent of micro enterprise output is meant for the domestic or niche market.
The inability of these enterprises to compete in world markets could be due partly to the use of inefficient technology and partly to other factors that make their products uncompetitive, such as costly and inadequate credit, costly raw material and lack of skill. The most important barrier to the adoption of improved technology, notes the report, is the lack of financial resources. In several instances, the cost of technology makes it difficult to adopt.
The working capital on average for SSI units using improved technology in all four states together was Rs 45.3 lakh, and Rs 20.4 lakh for units not using improved technology, indicating higher working capital requirements for units using improved technology. A large number of SSI units, though, reported difficulty in obtaining sufficient funds from banks and financial institutions.
There was also lack of awareness about credit guarantee schemes. Other barriers observed are lack of awareness and information about availability of requisite technology, desire to avoid risk of adoption of improved technology, low level of indigenous R&D, inadequate management skills and non-availability of technically qualified persons to operate new technology.
Last, but not least, the report admits that technology alone is not sufficient to improve productivity and efficiency of the unorganised sector. It requires supply of other inputs as well, particularly credit, raw material and a skilled workforce.