CHAPTER 2

LITERATURE REVIEW

For understanding the different studies that have been undertaken with
reference to small scale industries as well as light engineering industry, a
thorough review of the literature on the topic was carried out by the
researcher. Though literature on small scale industries are available in books
and journals, in large numbers, study about light engineering, especially about
the units in North Malabar region was not found. Some academics have
studied the small scale enterprises from employment point of view, some
from the point of view of its role of balanced regional development; some
viewed these units as the incubators for industrial growth and some others
stressed the economic and political reasons behind promoting small scale
sector. Studies of some scholars highlight the importance of small enterprises
because of its simple technology, flexibility, some observed the problems
associated with this industry, and others approached it from the point of view
of the opportunities available to such enterprises in the globalised scenario.
Literature review is done from the point of view of the easiness of
carrying on small scale industries. It is easy to start with a small business,
with lower investment. An efficient, small industry sector can substantially
enhance the efficiency of large factories by producing components or
providing some ancillary services for large concerns. Thus large sized
enterprises pave the way for the growth of small scale sector. At the same
time small scale industries neednt worry about the marketing problem and
thus they can also concentrate on production which will bring the cost curve
down.
In the study, Rana Zehra Masood1 opined that the pre independence
view that the cottage and small industry faced direct competition from the big

17

industries stood revised. The big is not a substitute for the small and vice
versa. Both were to grow; in a mutually supportive manner. The growth of
small scale industries will result in the diffusion of entrepreneurial and
managerial abilities and skills as well as technology throughout the country.
There has been an enhancement of both production and exports along with the
improvement in the quality of industrial products manufactured in the cottage
industry sector thereby providing employment facility and source of income
to the low income group living in rural and urban areas of the country.
An analysis made by Parande P.S2 stated that in the changed business
environment, the concern of the small scale units about the competition from
Multi National Companies (MNCs) is not well founded because the nature,
quality and quantity of their products as well as their production pattern is
different from products of foreign companies. In fact, MNCs may actually
help the small scale industries through greater demand for spare parts,
components, semi finished products etc. which the larger foreign firms wont
find economic to produce on their own.
According to Staley and Morse,3 a modern manufacturing economy is
not complete and not as it should be, unless it has both large units and small.
Large plants should not have to build into their own production structure all
subsidiary operations that enter into their products. The study projected that
an alert, efficient, small industry sector can substantially enhance the
efficiency of large factories by relieving them of the necessity of making
certain parts or performing certain operations. Economic growth requires
more and more men with personal qualities of initiative and leadership,
combined with skills in organizing and managing. Small scale enterprises are
one of such channels for motivated and talented individuals for economic
achievement.

18

In his study, O.P.Jain4 indicated that 52 percentage of the total

industrial output in the country was the contribution of small scale industries
in 1965-66. Almost the entire production in a number of manufacturing lines,
viz., clinical thermometers, spindle inserts, hair clippers, plaster board,
bifurcated rivets, hosiery, photographic and optical goods, metal products
except machinery leather products, fruit products etc. was the contribution of
small scale firms. These industries have also been moderately successful in
undertaking sub-contract business for large factories in the public and private
sector. Some public undertakings and few private undertakings have
established ancillary units for manufacture of parts and components needed
by them. Of the private large concerns, an outstanding instance is the Jay
Engineering works, Calcutta, which engaged about 5000 workers for
manufacture of parts and components of sewing machines and electric fans.
The following literature reviews highlights the role of small scale
industries as the tool for creating employment which leads to social
transformation. Compared to large scale, with lower amount of investment,
small industries create more employment.
According to the study by H.S. Mehla5, small scale industries can more
easily be decentralized than the large scale industries. There should be a drive
to spread out small scale industries in the rural areas so as to provide the local
people decent jobs without their having to move to big cities. He also
observed from the survey conducted in Bombay that small scale industrial
units tap sources of capital especially from family savings which wouldnt
have readily contributed to the countrys capital formation and industrial
growth.
E. Bhaskaran6 analysed the performance of MSMEs in Tamil Nadu for
the period from 1991-92 to 2008-09 based on important variables like total
factory units, employment generation, investment, production and subsidy
19

availed. The study revealed that there is an increasing pattern in the number of
units, employment, investment, production and subsidy. MSMEs have
exhibited a good performance in the recent years. The analysis of data by the
researcher clearly reveal that the increase in production is due to the increase
in the number of units, investment and employment and increase in
employment is due to increase in number of units and subsidy given. The
study concluded that MSME manufacturing and service sector will be
constrained to meet the expectations of the planners in future years, as far as
employment generation is concerned and MSMEs should make use of
announcements made in MSM Industrial Policy 2008 on infrastructure
support, direct catalytic subsidy support, technical support, information and
marketing support.
A research study, conducted by Christopher (et.al.)7 revealed that
economic gains, followed by own ambition, social prestige and social
responsibility are the important reasons for starting the small industry units.
High demand for the product, experience in the line, encouragement and
advice from friends and family are the factors which motivated them to set up
the units. Capital shortage and Governmental red-tape were the most
discouraging factors. Office of the Directorate of Industries and Small
Industries Service Institute assisted in starting the small industry units.
Rana Bijoy Deb8 conducted a Post Doctoral Research under the UGCs
Minor Research Project Scheme in 2001, taking 55 sample modern small
scale industrial units registered with the District Industries and Commerce
Centre, in the Tinsukia district of Assam. The objective of the study was to
identify the factors on which generation of labour employment (including
entrepreneur) depends in modern small industrial units. The study revealed
that:

Rural based industrial units have proved to be more efficient in the

generation of employment than their urban counterparts on different
20

grounds. In spite of various constraints, which stand on their way in

utilizing plant capacities, the rural units are able to generate more
employment with low capital as compared to their urban counterparts.

Stronger units with higher investment in fixed and working capital

generate more employment. They employ more skilled labour, pay
higher wages, and procure finance from institutional sources,
irrespective of their level of capacity utilization.
Dr Shankar Dayal Sharma, Late President of India9 pointed out that

much importance was given to the development of small scale industries in

many countries of Asia, Africa and Latin America, because of the labour
intensive techniques and use of surplus manpower. In many developing and
developed countries like Japan, USA, Italy, Canada, UK and Korea also the
small and micro sector holds the key to industrial development. Each country
has given emphasis to the development of small enterprises as an effective
tool for social transformation. Thus it is remarked that the small scale sector
is an important component of national industrial base and the driving force of
developmental effort.
Studies have shown that SMEs in rural areas in the UK have
outperformed their urban counter parts in terms of employment growth.
Behind each of the success stories of rural entrepreneurship there is usually
some sort of institutional support. Lu Rongsen10 in a study in West Sichuan
highlights the important factors responsible for the rapid development of
enterprises in the area. These include uniqueness of the products, local natural
resources, strong and integrated policy support from the Government and a
well planned marketing strategy and link up with larger companies and
organizations for marketing nation-wide and abroad.
The study conducted by Partha Pratim Sahu11 analyzed the growth
and performance of the unorganized micro and small manufacturing sector in
21

rural and urban India based on the data collected from NSSO for three
periods of time viz. 1984 July- 1985 June, 1994 July- 1995 June, 2000 July 2001 June. The study concluded that in terms of employment stake, the MSE
sector occupies a place of great significance, both in rural and urban India.
Within MSE sector, the groups of tiny and household run enterprises in the
rural areas occupy an overwhelmingly dominant position, both in terms of
number of enterprises and the number of workers employed. During the prereform decade many of the unorganized manufacturing units, most visibly the
other Allied Manufacturing Enterprises (OAMES), had closed down and
many workers got misemployed both in rural and urban areas. During 199495 and 2000-01, both the rural and urban areas recouped their lost ground,
but qualitatively, it was much better performance in the case of urban
unorganized manufacturing.
Some of the studies in the area of small scale sector have been done
from the perspective of economic and political reasons behind promoting the
sector.
As J.C.Verma and Gurupal12 observed, the growth of small business
enterprises including small scale industries in India has been in the form of
family business-or Hindu Undivided Family firms-where owners are
managers and family members take on other tasks. The work atmosphere is
permeated by unity, harmony, love and affection. While outsiders are
employed as well, they are also treated as family and the line between their
professional and social lives is usually blurred. They do not need formal rules,
regulations or supervision. Blacksmiths, goldsmiths, carpenters, potters,
brewers, bakers, weavers, dyers, vendors of milk products, tailors and drapers
etc are examples of such small businesses operating in urban and semi-urban
areas.

22

A study conducted by Deepak Nayyar13 highlighted that one of the

aims of Indias small scale Industrial Policy was the dispersed development of
units in rural areas and in less developed and backward areas. There has been
only limited success in attaining this objective. The Industrial Policy regime
in India exerted various disincentives to healthy development. Industrial
licensing, monopoly control, exit policies and price controls are some of the
features of the regulatory framework which deserve special mention. The
above policies and controls actually could not help in boosting industrial
development but rather remained as thorn in the way of fast development.
When these controls were taken away by way of liberalisation, there has been
faster development.
K.B. Suri14 in his study analysed that India has earned the rare
distinction among the developing countries of having ardently supported the
village and small scale industries throughout the post independence period.
They have been protected from unequal competition of large scale industries
through physical control on the product range and the growth of large
industries, discriminatory fiscal levies on the large sector and direct financial
aid and assistance and other promotional programmes for the villages and
small scale industries. The small scale sector is very heterogeneous as it
covers manually operated tiny house hold units widely dispersed all over the
country as well as urban based relatively small large establishments using
modern technology. The small units thus belong to three sub sectors (a)
traditional village industries including handicrafts, (b) small unregistered
household and non-household units not covered by Factories Act of 1948, and
(c) registered small factories, using modern technology.
According to A.K.Sharma15 industrialisation is inevitable in a
developing economy. It means an absolute and relative growth in the
importance of factories, mills, mines, power plants, railways, manufacturing

23

and closely related activities, and activities involved in the building and
operation of modern economic infrastructure and so on. An important
shortcoming of industrial growth in India has been its unequal distribution
between various regions. The areas which already had important industries
have provided nucleus for concentration of industry. In case of goods the
demand for which is uncertain, small scale enterprises can find favourable
atmosphere. In large industries, bulk production is inevitable. When the
nature of job is such that no division of labour is needed, small industries are
good. It is also observed that in the case of small enterprises the social costs
are low. Experience of China and Japan bears testimony to the fact that with
the use of power and small machinery, many costs can be considerably
reduced even in small enterprises.
In the words of Vasanth Desai16 in increasing and diversifying the base
of industrial production as well as for increasing employment opportunities,
the small scale industries have been playing important role in India. The time
has come when small scale industries have to improve their productivity and
efficiency by adopting modern technology and thereby reduce their cost of
production and produce quality goods at competitive prices. There is ample
scope for the existing small scale industries to double their plan and register
three fold increases in exports. What is lacking is organisation.
professionalisation, planning and co-ordinated efforts. Small sale enterprises
are the beehives of entrepreneurship, innovation, growth and development. Of
late, most of the Asian countries have adopted debate on policy of promoting
and

encouraging

small

enterprises

as

strategy

for

accelerated

industrialization. India has also given highest priority for fostering the
development of the small scale sector.
Studies of some other scholars highlight the importance of small
enterprises because of its simple technology, local resources, adaptation to

24

new technology and markets, flexibility in operation, etc. Components of

large sized machineries and products can be contributed by the Micro and
Small Enterprises using simple technology.
While evaluating the reasons behind promoting the growth of small
scale sector, Hrishikes Bhattacharyya17 observed that both political and
economic connotations can be traced for this.

Economically, it aims at

providing a greater degree of competition and free entry into business which
will keep the price level steady and encourage the units to bring down the
marginal cost curve through innovative techniques of production. Politically,
the preservation and extension of competitive atmosphere is necessary for the
survival of a democratic system. Concentration of economic power in the
hands of a few large corporations squeezes the elbow room for independent
political action, which in the long run tells upon the security of the nation. He
also observes that small unit is always in a better position to change to new
technology and embark upon product development at a much faster rate. The
speed is the strength of small business. Speed coupled with flexibility of
workers and capital enable a small unit to quickly switch over to new markets
and diversify its product lines when the existing market dries up or a product
loses its importance. He also adds that the mass production scale of large
industrial units affects the motivation of workers and thus affects industrial
relations negatively. Workers of a small unit are highly motivated because
they see both the owner and the product from close range. The high morale of
workers and a sense of belonging reduce conflict and friction in a small unit.
As a result, incidents of strikes and lock outs are reduced and absolute
productivity is increased.
A study was conducted by M.H. Balasubrahmanya (et.al.)18 to have a
comprehensive view of R&D in SSI which covered the extent and magnitude
of R&D and technology innovation activities, in the non tiny SSI on a sample

25

basis taking 1358 non tiny and 648 tiny units across the state of Karnataka
during Nov. 1999 to April 2001. Information about the casual factors and
objectives of R&D, personnel devoted to R&D, sources of technological
support to the units etc. are collected. Major findings:

External factors like competition, technology change and customer

requirements and internal factors like management motivation are the
primary motivating factors for SSI to engage in R & D.

R & D in SSI is performed informally due to internal technological

capability. Utilisation of external technological and technical support is
only complementary and confined to friends/consultants. Institutional
technological support is negligible and not easily accessible in SSI.

SSI units which have performed R & D have larger scale of

production, higher exports, higher capital productivities and higher
output as compared to units which have not done R & D.
As observed by Dr.C.S.Prasad19 Indian small enterprises have certain

inherent strength which helped them to raise their share in total exports to 35
percentage even in the face of tough global competition. The sector possesses
the advantage of immobility and flexibility. Their inventories are low and
have weathered many adverse situations successfully and boldly. Indian
SMEs have also had the advantage of local raw material and world class
cheap labour which could be harnessed to the advantage.
Report of the Expert Committee on small enterprises chaired by Abid
Husain20 which addressed the need for the reforms in the existing policies,
pointed out that efficiency and growth objectives of small scale industries
would be seriously jeopardized if small industries are allowed to grow in a
protective environment without exploiting economies of scale or attaining
technical efficiency. Simple technologies could be more appropriate in the
production of the basic attributes meeting with demand from low income
26

consumers. Micro and small enterprises may be able to use such technologies
successfully with low capital-labour ratios, while larger capital intensive firms
which cater to the high income segment of the market may use more
mechanized technologies to produce the attributes demanded by the wealthier
consumers. On the other hand small enterprises sometimes produce luxury
products, making intensive use of skilled labour, which essentially cater to the
luxury segment of the market and which the large firms cannot supply.
Few studies made by scholars who acclaim the importance of Micro
and Small Enterprises as the incubators of industrial growth are reviewed
hereafter.
As observed by S.K.Tuteja21 new SMEs are emerging worldwide; at
the same time at a very rapid rate, some other SMEs close down. Viewed
dispassionately, the high rate of entry and exit reflect the dynamism in the
sector and indicates why it is often seen as an industrial incubator. SMEs
contribution should be seen not only in terms of output, employment, income,
investment or exports but also in terms of the more qualitative indicators such
as synergies they promote with large industries, their contribution towards
balanced regional growth, and their contribution in nurturing entrepreneurial
spirit, innovation and in providing a nationwide pool of skilled and trained
manpower.
Staley and Morse22 in their study opined that small industries are
capable of giving learning by doing experience to more people and to a
broader range of social classes in more parts of the country than large
industries. The small scale sector open opportunities for people to rise by their
own ability and hard work and create an atmosphere of self-reliant initiative,
channel for social mobility etc. Much of the capital saving potentiality of
small industry and of small factories in particular is sacrificed by
inefficiencies of various kinds in the management of the firm, the
27

irregularity of material supply, lack of adequate external service. They also

observed that the gap existing between small factories and large ones in these
and other aspects of operation is less in the industrially advanced countries
than in the newly-industrializing ones. If a good part of industrial
development can take place in smaller increments, through a dynamic and
efficient small scale sector, there is better chance to discover the mistakes
before the waste of resources has gone too far. A case study was undertaken
in Jay Engineering Works, Calcutta, manufacturer of sewing machines and
electric fans and it was found that it sub contracted to 150 small units, mostly
within 5 miles of the sewing machine plant. The company representatives
stated that they found the results highly satisfactory. The reviews revealed
that larger firms are desirous of increasing their output and wish to use their
equipments most economically and are prepared to give sub contracting
orders to smaller firms if they can deliver the desired goods of the required
quality at the scheduled time and at economic prices. This can be taken as an
opportunity for small scale industries.
A field investigation conducted by Partha Patrim Sahu23 highlighted
that the rate of absorption of improved technology is relatively poorer in rural
areas for each component of improved technology. But there are no
differences in the policy support extended to technological innovations in
rural and urban areas. The barriers observed to adopt improved technology are
problems connected with training and skill, raw material, non availability of
technological changes, lack of awareness, desire to avoid risk in adoption of
improved technology, low level of indigenous R&D, inadequate management
skills and non availability of technically qualified persons to understand the
complexities of and operate with the new technology.

The study was

conducted by collecting data from 399 small scale industries in the three
Indian states viz. West Bengal, Haryana, and Maharashtra during 2000 April
to June.
28

Micro and Small Enterprises play a very important role in the balanced
regional development by reducing the concentration of economic power in the
hands of few. Most of the Micro and Small Enterprises are self owned ones
which employ few persons, distributing the income among themselves. Many
studies have addressed this point in serious ways.
Smt. Neeta Prasad24 pointed out that

the micro small and medium

enterprises had lent a major hand in catapulting India to the position of one of
the fastest growing world economies. Forty five percentage of the countrys
manufacturing output and almost 40 percentage of its exports come from this
sector. More important in this age of inclusion centric growth mantra is the
fact that micro, small and medium enterprises generate huge employment
the present figure is around 42 million and can promote balanced regional
development along with more equitable distribution of wealth. The thirteen
million strong Micro Small and Medium Enterprises sector produces more
than 6000 products and boasts of a total size of ` 5,60,000 crores. Having
maintained a higher growth rate than the overall industrial sector, MSMEs
contribute about 6 percentage to the GDP. With the progressive opening up of
the Indian economy, several leading manufacturers in the automobile and
other sectors are establishing their production facilities in India and sourcing
their inputs and supplies from the MSMEs.
A comprehensive analysis made by Devendra Thakur and Siv Sankar
Prasad25 exposes that the current economic conditions are conducive to the
development of small scale sector. The socio economic policy of the country
is to reduce progressively the concentration of economic power in few hands
and to exchange decentralization of the industrial enterprises so that those
living in remote place and backward regions can also share the benefits of
economic development in the country. It is well known that per capita income
generated by the growth of small industries is more than by other means.

29

Punjab in India, compared to other states or to the international states of Japan

which is coming close to being the leading nation, achieved tremendous
growth rate, through real encouragement of her small trade and industries.
Importance of SSI (now MSME) is also due to the inter-industry relationships
and inter-dependences in the economic system as a whole. The input of one
industry is the outputs of another industry and vice versa. A major part of
economic activity consists in producing intermediate goods for further use in
producing final goods.
With the opening up of market in 1991, small scale enterprises are
exposed to global competitiveness and business units maintaining quality and
flexibility are cropping the benefits of globalization. Globalisation is
increasing interdependence between people of all nations. In this era of
globalization SMEs too have to internationalise.
According to K.K.Dwivedi26 Special Secretary and Chairman, Central
Board of Excise and Customs, the term small scale sector is a misnomer. Only
individually it is small in its size and operation, but cumulatively, it plays a
major and significant role in the countrys industrial progress. In terms of
production, value addition, exports etc. this sector matches the combined
medium and large scale sectors. Despite this crucial role, the contribution of
small scale sector is not widely known.
A study was conducted by Narendra Nath Akhouri and Radha
R.Sharma27 taking 7 SMEs producing and exporting auto components based
in Delhi region, and interviewing 21 CEOs and 41 Middle level Managers to
bridge the knowledge gap and to explore the factors that contribute to high
productivity in SMEs in the auto sector. The study concluded that there is
statistically significant difference between professional of high performing
units and low performing units on account of engaging leadership, employee
engagement, cultural intelligence and positivity and negativity. This is very
30

specific to the auto SMEs since they are export oriented and the overseas
clients are very demanding in terms of quality, speed and consistency of
delivery.
A case study conducted by Preethi and Jeet28 throws light on the
challenges faced by SMEs and presents strategies to come out from the tough
times. Different industries such as chemicals, electronics, castings,
fabrication, bottling plants, machining and processing industries in Jaipur
and Moradabad region are selected as the sample for the study.
Important challenges include:
1.

Capital is the single most important challenge factor that was holding
back the growth of the SMEs in India. They lack access to private
equity and venture capital and have a very limited access to secondary
market instruments.

2.

Understanding WTO agreements and their implications.

3.

Fragmented markets in respect of their inputs as well as products, are

vulnerable to market fluctuations. They also find difficulty to access
inter-state and international markets.

4.

Outdated technology and lack of awareness of global best practices.

5.

Delay in settlement of bills by large scale buyers.

Strategies recommended:

Leverage collective strength and jointly bid for projects and execute
them based upon their expertise.

Look at ways to increase production through upgradation of

technology and updating skill of employees.

Optimize operations, change their outlook and closely adhere to

responsible business practices.

31

HR development and management activities should be focused and the

challenges that they face on their HR front should be addressed.

To be successful in marketing, focus their business development

efforts towards faster growing customers than on larger ones.
Maruthi Rao29 in a study carried on with objective of measuring the

impact of Global Financial Meltdown (GFM) on small business and the

practices to be adopted to mitigate the impact, found that as large number of
small business units are ancillary units, depending on a single buyer for sales,
most of them are in trouble due to GFM. Small businesses who heavily
depend on overseas markets for business are also victims.
Regarding the practices to be adopted for mitigating the impact, he
suggested that rework and rejection should be reduced through technology
upgradation. Units can look for related diversification by producing products
which meet the need of the industry which they are not serving regularly at
present. The sample included 100 units consisting of automobile, petrochemicals, chemicals, and water treatment plants in various industrial areas in
Karnataka during 2008-09.
M.P.Sivakumar30 observes that in the highly competitive environment,
Government schemes for providing support for the growth of SMEs are
proactive and are playing an effective facilitative role. Foreign Direct
Investment flows into sectors such as infrastructure, telecommunication,
transportation, electrical and electronic equipments and automobiles have
opened up avenues to SMEs to emerge as a vibrant sector. As participants in
the global value chain, the SMEs can gain entry into large avenues, expand
their markets, find new niche markets for their products and become strongly
visible in the global arena. Promotion of inter firm linkages has opened up
new avenues for sub contract outsourcing and are used as a strategic measure
for SME development.
32

K.K.Subrahmanian and Abdul Azeez31 stated that the industrial units

facing the challenges of globalization could be large as well as small. In the
Kerala context, the impact of globalization on small scale units is of critical
concern because small scale industries sector is the source of bulk of
employment in the modern industrial sector with less capital investment. As
the economic reforms give room for the greater play of market forces and for
the large scale units to enter into some of the areas earlier reserved for the
small scale sector, there is erosion of advantages enjoyed by the small scale
sector. Besides, the spirit of ongoing economic reforms lies in the reduction/
removal of Government subsidies and assistances and facilities. The
liberalization of foreign trade and foreign investment policies has put the
small scale units in to struggle for survival in the vortex of global
competition. So the small scale industrial units have to transform themselves
to move slowly from protection towards healthy competition. For this they
have to adopt a strategy of flexible specialization (clustering) to introduce
technological changes and organizational innovations and to achieve
efficiency based growth.
K.R.Pandit32 opines that most of the Indian small scale enterprises are
under illusion that WTO and its implications affect only those units which are
in international trade and undertake either imports or exports and do not affect
those producing and selling domestically. But in reality any serious
international happening or problem will have cascading effect on all
industries and services. The government needs to take bold steps to increase
competitiveness

of

Indian

industries.

High

transaction

costs,

poor

infrastructure and inefficient service sector are going to further erode

competitiveness when small scale enterprises are exposed to global
competitiveness. Global competition is based not only on product or process
based advantages, but also on co-relative increase in profitability, information
advantages and reduction in transaction costs.
33

Bibek Debroy (et.al)33 conducted a study to evaluate the impact of dereservation of the small-scale industries (SSIs) in India. There is a
presumption that small scale industries producing reserved items will be
performing better than their counterparts, as they do not have to compete with
larger manufacturers. The study revealed that from 1991 onwards, General
Economic Policy moved towards openness of the economy both for
investment and imports. Consequently, de-reservation process began in 1997.
Contrary to this presumption, the researchers found that capacity utilization in
1987-88 and aggregate change in production in 1987-88 were both lower for
reserved than for unreserved items. They also suggest that lackluster
performance of the reserved industries might be attributed to excess entry of
small firms into these protected sectors.
Kerala Scenario:
People from Kerala state have started and succeeded in business
activities in different parts of the country.

They are noted for their

commitment to work, knowledge, flexibility etc. The high rate of educated

unemployment in the state warrants expansion of industrial activity.
Compared to other Indian states, industrial development in Kerala is not up to
expectation. Also there is wide disparity in industrial growth. The views of
different scholars from different angles on the small scale enterprises in
Kerala are reviewed hereafter.
M.A. Oommen34 in his study pointed out that the integrated facilities
for development in the industrial estate provide several economies to the
small-scale industries. It attempts to provide the entrepreneur with factory
space and other basic facilities at reasonable prices. It also makes possible the
setting up of common technical workshop, repair and other services. In many
cases, it helps small units to make use of the services and goods mutually and
thus to secure some economies in production. Economies could also be
34

granted through common arrangements for transportation, purchase of raw

materials, publicity for sale and the like. Thus the Industrial Estate
programme could be made a tool of integrated development, which would
inevitably increase productivity of small industries. He added that unless the
right composition of industries is chosen, the facilities in the estates alone are
not likely to increase productivity and thereby industrialization.
S.V.S Sharma35 in his study on the industrial possibilities in Kozhikode
district, states that there is no dearth of entrepreneurship in the district. The
persons who are trained by educational institutions and who are unemployed
are the source of entrepreneurship. The analysis of resources, demand and
infrastructural facilities points out the potential existing in the district for
further industrialization. Demand based industries such as auto components,
electrical goods, consumer goods and ancillary products for steel complex and
textiles are suggested as feasible options.
Dr. Sudhajkar Rao and P. Sambasiva Rao36 in their study on the
industrial possibilities in Kannur district observed that modern small scale
industries are not well developed and existing industries are facing a lot of
problems both in terms of competition as well as higher cost of production.
Because of these problems, potential entrepreneurs are not coming forward to
establish industries, even though there is no dearth of personnel either in
technical or professional fields. Entrepreneurs are to be motivated for taking
up modern demand based industries.
M.M.Thampys study37 tested the wage-cost hypothesis and the
psychic cost hypothesis with respect to the small scale sector. According to
the study, the wage-cost hypothesis holds good at least in the case of large
number of industrial groups in Keralas small scale sector. His study shows
that although there has been a decline in the number of disputes, the high
intensity of industrial disputes in the past has increased psychic cost of small
35

entrepreneurs. The trade unions in the state had showed that even with a few
number of strikes or disputes they can prolong the effect of it on the entire
sector. It is said that militancy of labour has resulted in pushing up wages
unmatched with productivity increase and this has led to the forming of
psycho phobia among the entrepreneurs which has stood in the way of
Keralas industrial development.
A detailed review made by Parameswaran Nair38 stated Keralas
reputation for bad industrial relations as one of the most commonly
mentioned reason for the industrial backwardness of Kerala. Organized
workers in the state had at one time shown a certain degree of militancy and
consciousness of their rights in comparison with workers elsewhere who were
relatively more docile and unorganized. This resulted in better service
conditions for workers within the state, but even then all statistics show that
the average rates of wages for workers in Kerala are not that much higher than
what they are elsewhere. Another cause he observed was the geographic
remoteness of the state from the major business and industrial centres in the
country. This results in certain disadvantages. Goods become costlier and less
competitive because of the heavy transportation cost incurred for
transportation of raw materials and finished goods. As regards engineering
industry is concerned, the abolition of the freight equalization scheme for
steel has also come as a severe blow to the state.
On analyzing the problems of small scale sector, P. Mohanan Pillai and
Santha

39

found that the capacity utilization both for the reserved and

unreserved products was low. More so for the resource based products,
thereby raising doubts about the relevance of a reservation policy for
promoting small industry. In terms of per unit employment Keralas
performance was better than the all India average but was far below that of
many other states. The wage share in value added in Kerala was very high

36

compared to all India level and other states. Again both capital and labour
productivity was very low though the reasons for these couldnt be
empirically verified. Sickness was less serious in Kerala compared to all India
particularly in the engineering industry.
Ahluwalia M.S. and Kurian N.J40 points out the widening regional
disparities especially in industrial growth across states during the post reform
period. They observed that the slow growth rate of industry in Kerala to some
extent is due to the inadequate response of that state to the ongoing economic
reforms. On the whole, the response of Kerala state to the ongoing economic
reforms has not been adequate and effective in the spheres affecting industrial
growth as in the states that have recorded higher industrial growth. Kerala has
to accelerate industrial growth for some basic reasons the high level of
consumption at present is sustained by the gulf remittances, which, being a
transient phenomenon, may tape off. Hence the income has to expand. The
high level of educated unemployment warrants a fast expansion of industrial
activity. Being a food deficit region, the state is likely to face worsening of
the barter terms of trade. This needs to be neutralized with higher income
growth, which in large part must come from the rapid industrialization of the
state.
As observed by K.V.Joseph and Pylee41 in their study, Keralites are
people with necessary skill and resources, but they are eager to invest their
capital mainly in the plantation sector, or in areas which render quick returns,
in speculative activities, or in land. One noteworthy aspect of the
development pattern of Kerala is the transformation of the State as consumer
state by which expenditure on consumer durables of posh varieties is pretty
high compared to the all India level. Increasing tempo of expenditure on such
items cannot be maintained without the availability of sufficient funds. Funds
which can be invested industry flow to other sectors. They also observed that

37

entrepreneurs of Kerala origin are stated to be migrating to other states like

Tamil Nadu and Karnataka. Many of them have been able to display their
indelible mark as entrepreneurs in areas outside the State. Their study also
revealed that non availability of metallic minerals and insufficiency of state
action contributed towards industrial backwardness of Kerala.
On examining the role of Small scale enterprises in Kerala, A.
Raghurama42 observed that in Kerala, after globalization, there has been a
decelerating trend in the number of units registered, investment made and
employment generated, despite the fact that the state is gifted with abundant
natural resources and favourable industrial climate. He concluded his study
stating that for the actual development of small scale industries, commitment,
dedication and hard work are required on the part of entrepreneurs and
motivation and incentives from the government. Small scale industries must
be competitive in the context of globalization for their survival and growth.
S.

Muraleedaran43

observed

that

there

are

two

phases

of

industrialization in Kerala during the pre- independence period. The first was
characterized by thrust less insignificant growth of small and cottage
industries which are dominated by agro-based industries. The second phase
started with certain policy initiatives of Government of Travancore. The
process of modern industrialization in the state started in the last quarter of
the 19th century. The industrial units were small in size. The government of
Travancore was also in the line to promote small units till the mid 1930s. The
scale of operation changed to large and medium scale by 1940s. Agro-based
industries continued its domination, which accommodated more than 50
percentage of the number of companies and employment in Kerala in 1947.
In the collection of reports on Small industries and economic
development, V.Ambili kumar44 analysed

that besides the large number of

village and small scale industries, the industrial sector of Kerala consists of a
38

few large and medium units, mainly in the public sector. The village and
small scale industries sector consists of traditional industries like handloom,
coir, beedi and cashew and modern industries like printing, wood, metal
products

and chemicals. Considering the growing population and

unemployment, it is very essential to develop the industrial sector of Kerala

mainly through the development of small scale industries.
Engineering Industries
Studies specific on engineering industries with a socio economic
perspective are very rare and of the studies available majority are technical in
nature. The limited reports on engineering industries are reviewed hereafter.
National Scenario
Shashi Bala45 in a study focused on the marketing problems of small
scale industries, classified the problems of small scale industries in to those
associated with the product and those with the market for the product. The
former arose from lack of standardization, differences in the quality of
materials used and lack of precision. The latter stemmed from inadequate
resources at the disposal of small scale industries for identifying market
outlets and tapping them profitably. He also pointed out that a study of small
engineering units in Howrah and other units in Saugor District found that
problems related to supply of quality raw materials is another problem. The
International Labour Office pointed out that small firm couldnt buy in bulk;
they couldnt employ and set up laboratories to test the quality and suitability
of different materials.
V. Murugesan and A. Sankaran46 provided a detailed review of the
entrepreneurial perception of problems in tiny, small, medium and large
industries in the Puthukkottai district of Tamil Nadu. Among the sample units
in tiny and small scale industries, majority were light engineering units. For

39

the study, entrepreneurs were divided into business community and non
business community. Their study revealed the following:

All the entrepreneurs in the tiny and small scale sectors perceived raw
materials as the major problem. Between the business community
entrepreneurs like Chettiyars, Brahmins, Naidu and Muslims and non
business community entrepreneurs there was no marked difference in
perception.

The business community entrepreneurs in medium and large scale

sector felt marketing as the major problem.

The experienced entrepreneurs have perceived raw material as the most

serious problem while marketing as well as raw material were
considered serious by the relatively less experienced entrepreneurs.
A case study conducted through in-depth interviews with the
entrepreneurs by Peeyush Bajpai47 in five different small scale units in
different parts of India for finding the problems of units becoming sick,
revealed the following handicaps of small Scale Industries in the
country.

Lack of entrepreneurship, financial constraints, rapid response to

temporary opportunities and lack of professionalism in management.

Banking Regulations which draw the entrepreneurs back from getting

ample credit and inability of the entrepreneur to sell his idea to the
financial institutions for getting credit

Dependence on a single client to sell the product which reduces their

bargaining power.
Out of the five units studied, three are engineering units producing
boring tools, bars for holding boring tools, process control instruments,
industrial heating equipments and engineering components required for
BHEL and allied industries. Another one was a leather unit and the
fifth one, a textile unit.
40

A comprehensive study conducted by S.Muralikrishna48 randomly

selecting 80 entrepreneurs from Autonagar, Visakhapatnam, on the
factors influencing the socio-economic origins of small scale
engineering enterprises, concluded that:

Different socio- economic factors such as age, education, occupation of

father, caste system etc, influence the entrepreneurial behavior.

Majority of the entrepreneurs started their ventures at a relatively early

age and were still continuing as entrepreneurs.

The level of technical education as well as previous job experiences

prompted many of them to start up an industry.

Most of them, finding it difficult to secure their livelihood in their

native place, migrated to places where they could find better business
opportunities.
Raj49conducted an empirical study on CSR practices among the SMEs

-- Issues and Concerns with the objective of understanding the level of

awareness and interest on CSR activities among the SMEs and to find out
reasons lagging in the implementation of CSR practices. The sample
consisted of 125 units located in Madras Export Processing Zone. The major
findings are:

Majority of the SMEs are aware of limited scope of CSR such as waste
minimization, reduction of usage, emission control, and community
services.

CSR practices like technology upgradation, environmental reporting

and award winning environmental schemes, brand building practices
which are important for sustainable development are not found any
significance in the SME agenda.

41

Investing in people, creating good work life, social events for staff etc.
are the top priority activities of CSR related to employee benefits and
the level of involvement in local community activities are high.

Kerala Scenario
M.A.Oommen50 provided a comprehensive analysis and found that out
of the total 1730 registered small scale manufacturing units 780 or more than
45 percentage are light engineering industries. Agricultural implements, steel
furniture and structural fabrications constitute the major proportion of light
engineering small scale units in Kerala. As Kerala is in the southern most part
of India, marketing outside the state would be a major problem for industries
in this region. Hence it is desirable to orient the production to such light
engineering products like locks, watches, precision parts, surgical and medical
equipments, scientific instruments and hand tools etc. which command higher
value in smaller bulk. The traditional skill and dexterity of blacksmiths,
goldsmiths and other rural artisans could also be utilized effectively in
making a wide variety of skill intensive light engineering products.
The psychic cost theory of M.A.Oommen51 highlighted that high wage
rate in Kerala is considered to be a constraint to the industrial growth and this
had led to the shifting of industries to neighbouring states like Karnataka and
Tamil Nadu. In his study, he defined the labour cost not only in terms of wage
and welfare cost, but also inclusive of the loss and inconvenience due to
strikes and disputes. His study revealed that one single factor for choice of
location for starting a unit is the availability of cheap labour. The high wage
rate accompanied by the high incidence of strikes and lockouts adversely
affected the investment in industries.
A study conducted during 2006 by K. Madanan, (et.al.)52 on industrial
promotion in the neighbouring states of Tamil Nadu and Karnataka, to

42

recommend measures for investment attraction, industrial promotion and

simplification of procedures that can be adopted in Kerala for speedy
industrialization of the State, found that:

Present business environment in Kerala is not as investor-friendly as in

the neighbouring states.

The attitude of the Govt. officers in Local Body, Pollution Control

Board, KSEB, Sales Tax etc. is generally negative.

There is no entrepreneurial culture in the state.

The social acceptance of industrial entrepreneurs is less compared to

the neighbouring states

Industrial financing by banks is not positive and the approach of the

banks is entrepreneur-oriented and not project-oriented.

There is scarcity for getting developed industrial land.

The study by K.G.Sheshan(et.al)53 revealed that aluminum and steel

based engineering industries, machine building industries, electrical

industries, ancillary industries to Cochin ship yard and manufacturing
industries have potential for establishment and further growth.
Ashitha Raveendran54 in her thesis observed the following category of
problems with the engineering industries in Kerala, viz. financial, production
and technical, labour, organizational, infrastructural, marketing problems and
the policy of the Government. She also observed that the prospects of total
industrial scenario of the state and the prospects of engineering industry are
interwoven. With its forward and backward linkages, the engineering industry
acts as a catalytic agent for overall development. The fluctuations seen in the
engineering sector are reflections of the general up or down turns for all
industries. During periods of economic growth the demand for consumer
goods increase which in turn raises the demand for manufacturing equipments
to produce more goods and the reverse during down turns. The revival of the
43

engineering industry during the upturn of the economy will be slower than the
other industries because when the demand for consumer goods rise, the users
first utilizes the idle capacity. Thus, the demands for engineering goods will
be slow to rise and quick to fall over the course of the economic cycle.
In the study, Structuring Industrial Linkages in a Developing RegionThe Case of Kerala, P. Mohanan Pillai55 observed that the present position of
Kerala as an industrially backward state raises question about the role of
historical forces in shaping and determining the overall structure of the
industrial economy of the region. The influence of the agrarian economy, the
effect of colonial capital, the impact of labour conditions and the origin and
development of a nascent bourgeoisie and their role in industrial
transformation has attracted scholarly attention. However, the scope of these
enquiries was confined to southern Kerala, possibly because the region had
demonstrated greater industrial dynamism and accelerated growth compared
to Malabar, particularly in the last decades of the colonial rule, although this
dynamism had petered out later. The rise of trade unionism paved the way for
the widening of inter-state wage disparities. Consequently, many of the
industries have been shifting across the borders in search of low cost
locations. Further, there has been a tendency for fragmentation of production
of traditional industries into small units to circumvent trade union pressure
and labour laws. The study on the performance of the small units in the region
revealed that the growth of small units was poor compared with the All India
average as well as other south Indian states in terms of size and productivity.
While the average size of the small units has doubled, in the structure of the
industry, there is predominance of resource based products like wood and
wood products, food products, rubber products and a total lack of modern
engineering industries.

44

Mridul Eapen56 made a comparative study of Keralas industrial

structure in relation to south Indian states, which revealed that the industrial
structure of Kerala was less diversified and that it showed bias towards agro
based and chemical industries and had low share of engineering industries.
She examined the role of linkages in a process of industrialization. The article
concludes that an excessive concentration on agriculture induced linkages has
resulted in an under estimation of the potential for rural linkages for
manufacturing. The fast growing service sector in the rural areas and the
demand for simple intermediate goods provides considerable scope for
production linkages. They could play a dominant role in generating nonagricultural employment even in rural areas, primarily through consumption
linkages.
The literature reviewed and reported in the preceding pages has
brought in conceptual clarity about the operations of SMSE in the country.
Studies pertaining to light engineering sector, especially with reference to
North Malabar is not found out. So this research is an exploratory study
pursued with a review of Indian industries with succeeding chapters.

45

End Note
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49