Problem faced by small scale industries in book in Indian economic

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Small scale industries are an integral component of the Indian economy and only a handful has the capabilities of remaining afloat for the coming decade. Small scale industries constitute around 1.7% of the Indian GDP and 3-7% of the value added of the value chain. Large scale industries including commodities, manufactures, allied industries are bound to account for two-thirds of the manufacturing industry. Large scale industries include petrochemicals, steel, steel-related industries like cement, and cement component makers. Larger scale industries include electric and power, refined petroleum, cement, bottled water, chemicals, pharmaceuticals, electronics, and mineral & fertilizers.

Domestic demand has been adversely affected during lockdown due to growing infrastructural constraints and declining domestic consumption. Large scale industries such as automobile industry, beverages, cement, steel, cement manufacturing, potash and nitrogen fertilizer, cement paper, etc., have all registered large declines in sales volumes and production. Large-scale companies are urged to increase the operating rates as part of the strategy of securing survival. We also observe a sharp decline in raw material prices and corrections to the rupee-dollar exchange rate. However, less adjustments have been made to value addition. Despite large scale industries experiencing some of the lowest production volumes during the pandemic, the overall purchases of large scale industries increased by 3% year-on-year as compared to September 2020 due to their higher price and availability of funds.

The crisis in the Indian economy has resulted in real crisis in the domestic demand and the likely impact will be greater in developing countries than developed ones. A drop in monthly car sales has predicted by the RBI in October 2020. Further import of some key raw materials, including copper, steel, milk and other dairy, to India through labour movement has shrunk year-on-year. Also, a drop in power and coal consumption, as well as gradual increase in infrastructure and fresh supply to the private sector, have made renewable power demand to have increased week-on-week.

Sugar consumption was relatively high during the first few months of this financial year. As per BP, rail transportation volume for sugarcane crushed by cane is likely to be higher by 23% for first half of 2020-21. Dairy farmers are busy in a number of areas such as production of milk, milk products, etc., with the rise in demand.

The main reasons of deceleration in the food and non-farm industrial activities include low consumption in residential and non-rural sectors, apart from the virus and disruption. Housing market has experienced a sharp decline with sales volume for residential properties contracting by 38% year-on-year. The sales for single bedroom houses declined by more than 30% year-on-year, while sales for apartments declined by 23% year-on-year during September 2020.

Currency depreciation; absence of flexible monetary policies; and large fund withdrawal from the banks and financial institutions are the main causes of the economic crisis. Rising possibility of non-performing assets has increased the risk of financial crisis. Large household debt has made the situation even more dire. Therefore, concerns of another IMF financial crisis and bailout are very much likely.

The Indian economy is at a critical juncture and the stand-alone policies must address the crisis and overcome future recession. We recommend the country to regulate the foreign investments, with the objective of generating revenue, offsetting the increase in debt, and combating trade and investment bubbles. Alternatively, this is recommended to include a regulatory target of the foreign investments to help achieve the target.

Some of the measures that could be taken to ensure longer term survival for the overall Indian economy include the re-introduction of the benefits under the GST regime for the small and medium enterprises; restructuring the banking system with an objective of becoming less a hurdle for taking up new project projects; putting measures to ensure liquidity flow into the private sector; supporting the development of small SMEs by allowing greater investments; simplifying of the Indian laws & policies; licensing of state-owned limited company to level up industry competition, increasing the number of state insurance companies and increasing funding to them.

Our report analyses the macroeconomic and financial situation in India in terms of the impact of COVID-19 and finds out possible solutions.