Small just got a bit smaller

Following a recent trend, Budget ’05-06 is expected to reduce the number of reserved items in the small-scale industries (SSI) list.

Hosiery and knitwear may be dereserved, along with bicycle parts, rubber items and agricultural implements. There are 21 textile products under SSI reservation. Reserved items include knitted cotton and woollen cloth, undergarments and caps.

Synthetic knitted swimwear, scarf, ties, T-shirt, collar shirt and other synthetic knitwear are also reserved SSI sectors. Today, the 11.4m SSI units in the country employ over 27.1m people. The sector contributes 40% of the country’s industrial production and 34% of exports.

The government believes that in the changed global economic scenario (post-quota), unless the hosiery and knitwear sectors are dereserved, industry won’t be able to face fierce competition from countries like China.

The government has been reducing the number of reserved items from the SSI list for some time now. Around 51 items, including garments, were delisted in ’02. In ’03, 75 were removed and about 85 items were dereserved in ’04. About 570 articles remain in the reserved list in 22 categories now.

To boost the sector, it is expected that the finance minister will announce the modified version of the Small Enterprises Development Bill (SED). According to the ministry of small scale, agro and rural industries, the modified draft of the SED Bill is ready.

Enactment of the bill will remove the barriers to SSI growth by inculcating a hassle-free, user friendly environment, enabling SMEs to diversify from the conventional product range. It is also expected to encourage exports, aid global integration and propel SSIs towards the 12% growth target.

In addition to SED Bill, the ministry is formulating a major promotion package for development of SSIs. The government also plans to broaden the definition of SSI. It includes enhancing the turnover limit of Rs 1 crore, including number of employees as a defining criteria and introducing a separate small & medium enterprises (SME) category.

“An official definition of a medium enterprises segment within the SMEs is also expected in this budget,� according to a government source. The government is considering setting a limit of Rs 10 crore for investment in plant and machinery for medium-scale enterprises.