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When small is no larger beautiful..

Professor R Vaidyanathan of IIM Bangalore and S Gurumurthy of Swadeshi Jagran Manch have been quite active in recent times in re-establishing the small is beautiful concept. In his book India Uninc., RV points to the substantial contribution of the unorganised sector to the country’s GDP.

    I belong to the small sector, entering this over five decades ago. I have been operating in the Industrial Estate, Guindy for 34 years. Guindy pioneered the concepts of industrial estates and the small sector in the country. The small sector was designated a priority sector status. For decades this did enjoy concessional rate of lending from banks, lower rate of excise duties and more moderate tariff for power. In the liberalisation era these have vanished. Interest rates of 14 per cent are much higher than the return on capital most of these units get. A huge power tariff of over Rs 7.50  for kwh is poised for further rise. With existence a struggle, very few have scaled up their operations or bothered to  induct technology. The result: most of these units have disappeared from the landscape. When I set up shop in the 1980s, 15 others were allotted sheds. Of these 16, just two of us have survived in the same line of activity. The rest have sold off their properties or moved out. One saving grace for these was the huge spurt in real estate prices. Many of them handed the property to developers to great profit. The estate, which was once a centre for engineering excellence and innovation by small units, is now totally devoid of these.

The crucial lesson: businesses today needs large capital to scale up operations, technology and management. In all these the small, unorganised sector suffers severe handicaps.

China built its economy by scaling up production. When an enterprise produces a million steel chairs a year, it is miles ahead of a small unit in India producing a few hundred pieces a month and cannot obviously survive the competition. Most units that were producing steel chairs in the city, today trade in chairs imported from China (not often of reliable quality) but priced at half of their own cost of doing it.

Large  scale production would take demand for basic commodities like steel to dizzy heights. Four decades ago production of steel in China was comparable to that of India. Today China is the largest producer of steel . She produced last year 779 million tonnes. India produced 81.2 million tonnes.  This scale makes China offer steel at much lower prices to hundreds of manufacturers of steel products. This in turn makes Chinese products extremely competitive. Go to any large mall in the US; most of the products ranging from textiles to computers to electrical goods and to a vast range of consumer products carry the label, Made in China.

Reliance Industries provides yet another instance of economics of scale. The two refineries, set up by Reliance at Jamnagar import crude and refine it to a wide range of products at modest cost and exports these at high profit. Last year the company exported 41.2 million tonnes and earned for the country $ 44.1 billion. Despite crude oil and petroleum products accounting for over a third of the import bill, thanks to Reliance,  petroleum product exports have the largest share in foreign exchange earnings. We need to build scale in production.

 

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