In most developing countries—including India—the rural labour force has been growing rapidly but employment opportunities have been dwindling. As the land available for expansion of agriculture becomes increasingly scarce, opportunities for non-farm employment must expand, if deepening rural poverty is to be avoided. Given the expected growth and composition of large-scale urban industries, they are unlikely to be able to absorb the ris ing tide of workers migrating from the countryside to the cities. Looking towards the twenty-fi rst century, we must slow the process of the urban spread, with its high social and environmental costs, such as conges tion, pollution, skyrocketing land costs, growing violence and increasing incidence of sexually transmitted diseases (STDs) such as AIDS. Expansion of the rural non-agricultural sector, with its emphasis on labour intensive and small-scale enterprises, widens income opportunities for the poor, including small farmers, the landless and women, enabling them to even out extreme fl uctuations in their incomes.
The relative importance of the rural non-agricultural subsector and the composition of the various economic activities included in the sector dif fer widely from region to region in India. Broadly defi ned, this subsector includes economic activities outside agriculture, carried out in villages and varying in size from households to small factories. Some examples of these activities are cottage, tiny, village and small-scale manufactu ring and processing industries; and trade, transportation, construction and services of various kinds. Household industries have declined over time, whereas small-scale, non-household industries have expanded. Cottage enterprises—based on part-time family labour—are relatively less effi cient than small-scale, full-time and specialised rural industries. As the cost of labour rises, enterprises with no scope for division of labour continue to lose their cost advantage. The rural towns that serve as trading and distribution centres for both urban and agricultural goods subsequently attract manufacturing activities.
The linkages between the rural non-agricultural and agricultural subsectors are critical for rural development. The growth in farm income provides an expanding market for consumption goods and agricultural inputs produced by the non-agricultural subsector, while agricultural raw materials are processed in the rural non-agricultural subsector.
The rel ative strengths of the consumption and production linkages depend on the pace and pattern of growth in agricultural income, and the produc tion technology used in agriculture. The higher the per capita income growth, the higher is the share of non-food consumption in rural expen diture and, hence, the greater is the stimulus to the growth of the rural non-agricultural subsector. The share of locally produced consump tion goods (as against imports from urban areas or abroad) in consumption expenditure depends on the distribution of income in agri culture. It is higher among the medium or small farmers than among the rich.
The Khadi and Village Industries Commission (KVIC) has identifi ed 95 village industries for government support. These industries are divided into the following seven categories:
1. Mineral based industries.
2. Forest based industries.
3. Agrobased industries.
4. Polymer and chemicals based industries.
5. Engineering and non-conventional energy based industries.
6. Textile industry other than khadi.
7. Service industry.
In India, cottage and village industries have been an important occu pation of the landless and other poor people in villages for ages. It is an important source of income and employ ment opportunities for them. As a matter of fact, agriculture and rural industries are complementary to each other. This sector has the second largest share of employment after agriculture. It touches the lives of the weaker and unorganised sections of the society, with more than half of those employed being women, minorities and the marginalised. Fifty-seven per cent of the micro and small enterprises (MSEs) units are owner-run enterprises with one person. They account for 32 per cent of the workforce and 29 per cent of the value added in non-agricultural private unincorporated enterprises.
The sector contributes over 40 per cent to the gross turnover in the manufacturing sector, about 45 per cent of manufacturing exports and about 35 per cent of the total exports. In order to give a further boost to this sector, several policy initiatives have been taken by the Government of India, including a scheme of integrated infrastructural development, concessional rate of excise duty to non-registered units, quality certifi cation scheme to acquire ISO 9000, raising project outlay from Rs 30 lakh to Rs 50 lakh in the single window scheme, and adequate and timely supply of credit as per the Nayak Com- mittee (1992) recommendations. Besides, the investment limit for small-scale industry (SSI) units has been increased from Rs 60 lakh to Rs 3 crore, for the tiny sector from Rs 5 lakh to Rs 25 lakh and the composite loan limit for SSI units from Rs 50,000 to Rs 2 lakh.
The Nayak Committee, set up to examine the adequacy of institutional credit to the SSI sector and related aspects, observed that it would be safe to presume that the bulk of the fi nancial needs of the rural segment of the SSI sector was met from private sources, includ ing moneylenders. In regard to the overall SSI sector, it observed that
1. there has been a dispersal of SSI units away from the metropolitan areas and large cities;
2. in spite of the increased fl ow of credit, the share of the tiny sector and village industries has been dismally low; and
3. establishment of forward and backward linkages to ensure the success of enterprises has not kept pace with the increase in the fl ow of credit.
Credit is only one of the essential inputs for industrialisation and only if other sup- porting facilities, including adequate and timely availability of raw materials, skilled labour and marketing support are provided on an assured basis, will entrepreneurs be able to prepare viable proposals and obtain institutional fi nance. The Nayak Committee recommended, among other things, the creation of a separate fund for modernisation, research and marketing, venture capital assistance for promoting viable projects by technocrat entrepreneurs, and detailed data collection for village and tiny industries.
Infusion of appropriate technology, design skills, modern marketing capacity building and easier access to credit can make this segment an expanding base for self-sustaining
employment and wealth generation, and also foster a culture of creative and competitive industry. Agrofood processing, sericulture and other village enterprises can check rural–urban migration by gainfully employing people in villages. This will also take pressure off agriculture. The MSE sector can open up a window of opportunities in regions like the northeast where large industries cannot be set up due to infrastructure gap and environmental concerns. The income generated from various activities in this subsector is more evenly distributed than that generated in the large-scale manufacturing subsector. Besides, due to the low capital requirement per worker, the subsector can generate more jobs with a given amount of capital than the corresponding large-scale factory industries.
Lack of adequate infrastructure is a major impediment to the develop ment of indus- tries in the rural areas. Electricity, transport, communica tions and availability of ancillary and allied services, such as suppliers of raw materials and other inputs, semi-skilled and skilled labourers to attend to the problems of machinery, marketing and credit support agencies, and so on, are essential for the growth of industries. In their absence, production activities of tiny units tend to concentrate around the peripheries of urban centres. The Sivaraman Committee has suggested that the responsibility for providing infrastructural and extension support to the development of industries in rural areas (including providing raw material supply) be assigned to the state governments. In the absence of responsive and committed agencies for providing these essential services, banks fi nd the task of supporting the development of rural industries frustrating.
Several ministries, departments and institutions deal with activities falling within the domain of the MSE sector, and have a variety of schemes to support the MSEs. However, the benefi ts accrue to only a small fraction of the MSEs, as only 13 per cent are registered. In the Eleventh Five Year Plan, we need to adopt a dual strategy to ensure that the unregistered MSEs and units outside the cooperative fold are encouraged to get themselves registered and are also able to benefi t from government schemes, pending registration. In fact, the provision of voluntary fi ling of enterprise memoranda by the MSEs in the new Micro, Small and Medium Enterprises Development Act, 2006 is a step in that direction and should be implemented energetically.
There is need to change the approach from emphasis on loosely targeted subsidies to creating an enabling environment. A cluster approach can help increase viability by providing these units with infrastructure, information, credit and support services of better quality at lower costs, while also promoting their capacity for effective man- agement of their own collectives. Further, in order to improve the competitiveness of these micro, small and medium enterprises (MSME), schemes for establishment of mini tool rooms, setting up design clinics, providing marketing support, sensitisation to intellectual property rights (IPR) requirements and tools, adoption of lean manufacturing practices, wider use of information technology (IT) tools, and so on, should be evolved on a public private partnership (PPP) basis. Brand building can be used as an effective strategy to promote their products in national and international markets. According to the Union Budget 2008–09, a fund of Rs 5,000 crore is to be created in the National Bank for Agriculture and Rural Development (NABARD) in 2008–09 to enhance its refi nance capacity for the MSME sector. Similarly, two funds of Rs 2,000 crore each are to be created in the Small Industries Development Bank of India (SIDBI); one for risk
capital fi nancing and the other for enhancing its refi nance capacity for the MSME sector.
All these measures would be more effective if targeted at identifi ed clusters. It is also necessary to recognise the continuing need to facilitate graduation of these enterprises to higher levels, particularly from small to medium. There is a need to provide incentives for the graduation of MSEs to medium and larger units through well-calibrated fi scal and non-fi scal measures.