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New bill promises boost to rural industry

Policy must focus on the process of industrialisation

Photo: H. Vibhu

WEAVING A FUTURE: Handloom weaving is a source of livelihood for millions in rural India.

THE GOVERNMENT introduced the Khadi and Village Industries Commission (Amendment) Bill, 2005, in the Lok Sabha on August 22. Piloted by the Union Minister for Small-Scale Industries, Mahavir Prasad, the Bill seeks to alter the definition of "village industry" by raising its fixed income cut off level from Rs. 15,000 to Rs. 1 lakh. Besides the change in definition, it has several provisions relating to the administration of the KVIC, as the country's largest rural development support agency.

While the proposed Bill, when legislated, is likely to change the administrative structure as also the opportunities available to rural industries, it is also necessary to discuss the Bill in the context of the overall SME policy in the country.

The core issue relates to rural industry development in the context of the country's development imperatives. The rural industrialisation programme in India has a dual character: First, its political sensitivity in relation to its links with the `Freedom Movement'. Second, from the point of view of employment generation and balanced regional development, rural industry is the only sub-sector that offers the maximum spread.

Emerging issues

Though, in theory, the relevance of rural industry has come down, its functional relevance continues. The functional relevance of rural industries needs to be discussed in terms of their present role in the economy. Hence, we can redefine rural industries based on what they actually do. The broad features of a rural industrial enterprise are their location in a rural setting with a limited market and linkages; abundant labour availability but scarcity of capital; and focus on local skills and relatively low-technology.

Based on these criteria, India's rural industries cover its significant informal sector. The term informal sector covers both the micro base of entrepreneurship which spontaneously emerges, as also, a micro sector that has been deliberately created as an appendage of large capital. Viewed from this angle, an array of economic activities falling under the rubric `rural crafts', such as handlooms and handicrafts, can form the compass of rural industries.

Exchange and use value

The craft based products are also commodities exchanged in the market. They perform two roles — exchange value and use value. The exchange value of a craft product arises out of its design and appearance; and (b) ethnic origin. For example, batik produced in Indonesia may be inferior to Indian handlooms. But they attract a premium in the Indian market because of its particular ethnic origin. Both India and Indonesia turn out bamboo handicrafts. However, such handicrafts produced in China attract a much larger premium in the European market. China's advantage lies in the peculiar design and look of their products. For example, handicrafts are meant not exclusively for exchange value; their use value is also important. Therefore, a craft product with greater use value as well as exchange value attracts a premium in the international market, though all handicrafts have at least a limited market share, based exclusively on their ethnic origin.

Public policy

Sustainability of rural industries has become a crucial area of debate in recent times. Marketing was considered a problem rather than an opportunity. This `problem' was sought to be addressed through enhanced public policy interventions, such as bhandars and common marketing centres organised by the government, marketing federations and co-operatives.

The fact that products of rural industries do not attract an appropriate market points to a basic lacuna in rural industrialisation policy. The official focus has been primarily on the preservation and revitalisation of traditional industries, and not on a programme for rural industrialisation (Papola, 1982). As a result, rural industries have not played an effective role in providing reasonable incomes to those engaged in them, or in integrating the rural areas into the overall industrialisation process. Some economists point out that the problem of rural industrialisation was never considered as an aspect of spatial diversification of industries, addressing the wider questions of locational flexibility, economies of scale and agglomeration, infrastructure and incentives and concessions. On the other hand, it was viewed in terms of a limited concept of promoting village industries. Under such a limited approach, a vicious circle of static technology, competition from substitutes and low income elasticity of demand, are natural (Papola, 1982).

These issues gain added complexity under globalisation, where markets are characterised by extreme competition and volatility. While rural industry has been perceived traditionally as catering to the local market, or at best, to a wider national market through limited formal channels, the reality of globalisation since the 1990s introduced a new dimension to the market for such products. While the public outlets lost their capability of providing marketing opportunities, the reality of the market itself became complex.

The issue of rural industrialisation, therefore, needs to be viewed from a new angle and on far more scientific lines. The core of a scientific approach is to understand the market opportunities for rural products along with the country's development priorities and to chalk out a strategy where rural industries have an important role to play. It is often presumed that in rural areas, industries form only a subsidiary occupation. Most traditional industries are household-based and family labour-based. However, in an open economy, where materials and technology flow freely and markets are open and global in nature, production at the household level becomes rather difficult. This demands a change in the household organisation of production itself.

The production structure and the consumption pattern of rural and urban areas are characteristically distinct. With rising rural incomes, a shift both in the input structure of production and commodity structure of consumption in favour of the so-called urban products is inevitable. In order to take advantage of these changes, rural industries need to have some dynamism relating to technology, product design and organisational structure.

While before the globalisation era, the switchover was relatively easy through supply-side interventions, under globalisation the situation has completely changed. While rural products are forced to increasingly become part of global supply chains, these products need to adapt themselves, not only according to the changing tastes of the national market, but also according to changes in tastes in the international market. It is in this context that the importance of networking of enterprises becomes important. The crucial questions that emerge are the following: (1) Are we able to protect rural industry with existing policies and programmes? (2) Is there a role for rural industry in the overall programme of economic development.

An answer to these questions is not simple. More than being questions in economics, they are wider questions in political economy. A review of policy exercises for rural industry during the last one and half decades of active liberalisation has shown that there has been an enhanced patron-client relationship emerging in this sector. While rural industry has been considered outside the mainstream of debates on small industry, the thrust on it has been largely out of political compulsions. This crucial influence of policy is one area of concern, in relation to enhancement of investment ceiling. If the policy implementers are not vigilant, the benefits of the new changes may be cornered by vested interests.

Enhancing productivity

The opportunities for enhancing productivity in rural industry have not yet been explored. A study commissioned by the Ministry of Agro and Rural Industries, and carried out by the Institute of Small Enterprises & Development, Kochi, has come out with several recommendations relating to targeting employment opportunities as also establishing relevant linkages among the various programmes of the Ministry of SSI & ARI. These include a strategic reorganisation of both PMRY and various programmes of the KVIC.

The imperatives for innovation demand a coordinated approach that can energise rural entrepreneurs. While the public programmes since Independence have focussed on upgrading technical skills of the rural poor, precious little has been done so far to motivate them into entrepreneurial activities. This is one area which needs to be emphasised in the coming years. And this is the way forward, shown by the UN Commission on Private Sector and Development, in its report entitled `Unleashing Entrepreneurship': "Making Business Work for the Poor".

P. M. MATHEW

The author is Director of Institute of Small Enterprises and Development, Kochi.

He can be contacted at laghu@asianetindia.com

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