Business Line, December 05, 2014
By Pradeep S Mehta
With a little push, rural small-scale industry can propel jobs and growth, while modernising farming as well
The Make in India campaign seems to be focused on big industries in big cities. But it is time to see how micro, small and medium enterprises in rural India can be a force multiplier. Whenever anyone mentions the word ‘rural’, what springs to mind is farming. But more than 65 per cent of rural labour is engaged in non-farm livelihood activities, or the Rural Non-Farm Economy (RNFE).
The majority of rural labour is involuntarily engaged in low-skill, low-paid, tertiary-level jobs. Their lot can be improved if a synergy is created between Make in India and Make in Bharat.
RNFE consists of all non-agricultural activities in rural areas: from household and non-household manufacturing to trade and commerce and other services. At present, this sector is dominated by tertiary activities. One of the major development challenges before us is to create an enabling environment for the growth of micro-, small- and medium-sized manufacturing and service enterprises in rural areas.
This is the only sustainable way to provide better quality jobs to our rural youth. These opportunities can act as disincentives to their migration to cities in India and abroad. Our work in RNFE in States as diverse as Assam, Karnataka, Odisha and Rajasthan brings this out.
Under a UNDP-supported programme titled Insights into Indian States, we found that despite the existence of significant bottlenecks such as lack of access to credit and weak market linkages due to poor infrastructure, this sector contributes significantly to reduction in rural poverty.
We also found strong linkages between the growth of this sector and the implementation of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). Where implementation of MNREGA is strong, the RNFE sector did relatively well and poverty numbers were down. The proposed improved version of MNREGA should take this dimension into consideration. It should look at how MGNREGA can help create modern infrastructure for the RNFE sector, now largely oriented towards tertiary activities, so that the sector can take to manufacture of mass-based products.
We found that the manufacturing growth within the RNFE sector is not particularly dependent on government incentives. It is driven by the entrepreneurial spirit of the rural people. At the same time, due to infrastructural problems (such as roads and power) and weak marketing linkages, micro-, small- and medium-sized manufacturing units are unable to realise their potential for horizontal and vertical expansion.
The sector needs an enabling environment for business. One of the ways is to provide better infrastructure to address the problems of production and market linkages. Micro-, small- and medium-sized enterprises are more constrained than large ones in the establishment and running of their businesses. Removing those constraints (addressing the ‘ease of doing business’ issue) will make them competitive.
Therefore, the national manufacturing policy should help rural entrepreneurs explore linkages with large-scale manufacturing. The objective should be to establish strong linkages between micro-, small- and medium-sized enterprises in rural areas and big industries in manufacturing zones. Large-scale initiatives such as in the upcoming economic and industrial corridors should be viewed in this light. This approach is against the traditional concept of looking merely at agriculture-industry linkages to understand the development and transformation of an economy.
There must be special emphasis on setting up agro-based industries and encouraging large-scale production of mass commodities. Many such commodities are imported into India, which are in the nature of inessential imports. The Centre has taken the right decision to regularly monitor such imports and reduce them over time.
Such imports are both an indicator of the eroding competitiveness of Indian manufacturers and the inadequacy of domestic standards. We must apply improved standards equally to domestic manufacturing and imports of similar products. Hopefully, India’s new foreign trade policy will address the menace of inessential imports of sub-standard goods.
The Make in India campaign should create an enabling environment for developing strong linkages between large-scale manufacturing and smaller enterprises in rural areas. The effective implementation of the manufacturing policy and the foreign trade policy can strengthen the synergy between Make in India and Make in Bharat.
The Chinese experience
We have estimated that effective implementation of India’s trade policy can generate 15 million new jobs annually, much of it in the RNFE sector. This approach can also help usher in modern farming practices.
Rising employment in manufacturing activities in the RNFE sector will put pressure on the cost of production of agriculture. The way to address the issue is not through short-term incentives but by modernising the farm sector. This will lead to stronger linkages between agriculture and industry, which can act as a generator of growth and employment.
Over the last two decades, China pursued rural industrialisation at great speed through the development of township and village enterprises (TVEs) that led to China becoming the factory of the world. The co-operative culture in Chinese villages was crucial in enhancing TVE development. From 1986 to 1998, the average asset scale of TVEs increased about tenfold. In this process, the collective TVEs, in which land, labour, capital and materials were owned by the community, also played a significant role. India could learn from the successes and shortcomings of TVEs to realise the goals of Make in India and Make in Bharat.
Unlike China, India is a democratic, quasi-federal country, and therefore the Centre will have to incentivise the States to join this twin campaign. The proposal to replace the Planning Commission with a new entity by merging the Interstate Council, Programme Evaluation Organisation, Aadhar and Direct Benefit Programme will be a good platform to create ownership among States in any such national endeavour.
The writer is secretary-general of CUTS International. Co-authored with the deputy executive director, Bipul Chatterjee
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