CHAPTER 1
INTRODUCTION
The characteristics of small enterprises dovetail well with the socio-economic objectives of many of the developing countries. Generally, they are labour intensive, employment generating, capital saving, and capable of operation on a decentralised basis in rural areas. In countries which are concerned with the generation of thousands of new workplaces – especially in the rural areas – and with raising the incomes and quality of life of the poorer sections of the population, small-scale industrialization offers a far more appropriate alternative to industrialization strategies that emphasise large-scale, centralised industries, which until recently were favoured by development planners and practitioners. The issues of whether or not the technologies appropriate to small-scale industrialization exist and whether they are as economically and technically efficient as the large-scale alternatives have already been well researched. Evidence suggests that a wide range of technologies do exist and that, in a majority of cases, the smaller-scale technology is just as efficient as the large-scale'.
A more recent issue is that of how to go about enabling the widespread adoption and use of these technologies. To a certain extent, this is one and the same issue as finding appropriate ways of developing and promoting the small-scale industries which are the social carriers of these technologies. On this issue, very little empirical data are available. Many suggestions have been made as to what may or may not work in respect of supporting small-scale industries. In practice, there are very few examples available of well thought-out models which have been effectively implemented. This report, by describing the nature and impact of the interesting and successful model developed at the Birla Institute of Technology (BIT) in Ranchi, India, aims to add to the very small body of literature available which can show what is involved and what can be achieved in the development and promotion of small industries. It is hoped, this will be of assistance to those wishing to start small industry programmes elsewhere.
BIT's involvement started in the early 1960's when its founder, Mr B.M. Birla, formed a Department of Industrial Research, to develop an awareness of the needs of industry among technical students through work on projects of practical use to neighbouring industries.
Later, with an industrial recession, growing unemployment among engineering graduates and a change in government emphasis towards the development and support of small industries, the Chairman of BIT (Mr G.P. Birla) decided that the Institute's resources should be extended to the development of entrepreneurship among BIT graduates and the promotion of small industries to be run by them. This meant setting up a working group within BIT to man an organization which could provide all the necessary inputs for the development of small-scale engineering units. The inputs were to cover the entire spectrum from laboratory-scale research to the production of commercial prototypes and continuing technical assistance for industrial production. The organization was also to provide assistance for financing arrangements and marketing.
Such an organization (SIRDO) was established in 1972 and started work in a small way with funding from the Birla Institute of Scientific Research (BISR) and staff inputs from BIT. There followed two major inputs which, when integrated with the ideas and technical expertise of the BIT staff and the facilities made available through BIT and BISR, helped the scheme expand and thrive. First, the United Commercial Bank agreed to finance the small units sponsored through the scheme without the usual constraints regarding collateral and financial contribution from the entrepreneur. Second, the Government of Bihar, recognising the relevance of the scheme to its own industrial development objectives, agreed to provide sheds and infrastructure for an industrial estate from which the entrepreneurs could operate until they had confidence and resources enough to move off on their own.
The combined effect was the establishment of several flourishing small-scale industrial units. So impressed was the Government of Bihar with the SIRDO scheme that, in 1977178, when it was looking for ways in which to allocate the funds provided by Central Government under the 'Half a Million Job' Programme, it decided to give increased financial support and also to direct that all technical institutes within the State should start similar programmes. It was thus that an idea conceived in the early 1960's eventually became translated in 1978 into a State Government-sponsored programme known as the Small Industries Research Training and Development Organization (SIRTDO).
A particularly interesting aspect of the scheme is that it has its roots in a technical institute and it shows how a small group of teachers within such an institute can develop and implement a workable model for small industry promotion. Apart from this, there are three features of the scheme which are particularly worthy of attention. These relate to replicability, integration and entrepreneurial development.
First, the model forms the basis for starting similar schemes elsewhere and can provide guidelines to governments when planning small-scale industrialization programmes. Apart from the involvement of the Bihar Government in strengthening the Ranchi scheme and in funding the setting up of five similar centres in the State, the Government in the neighbouring state of Uttar Pradesh has also recognised the effectiveness of the programme and, following a visit to the Ranchi centre, is planning to give financial support to the BISR centre located in Allahabad. Additionally, the United Commercial Bank has found the model works so well that it is now encouraging technical institutes in other states to copy this and is offering to give financial support to small entrepreneurs sponsored through such schemes.
A second point is that the model has been built up largely by planning for the more efficient use of existing resources. Facilities for the development of laboratory and commercial prototypes, testing facilities, favourable banking arrangements, assistance with raw material procurement and marketing, entrepreneurial training, and provision of central facility workshops are things which are widely available throughout India. The uniqueness of the Ranchi model is that it brings together all these essential ingredients of a successful programme under the direction of a single working group. By successfully combining the efforts and resources of a technical institution, a scientific research institution, a financing institution and the Industries Department of the Government it has become a classic example of how to approach the problem in a truly integrated way. By doing so, it also illuminates the extent to which services and facilities lack integration elsewhere.
Third, the scheme is concerned as much with the development of entrepreneurship as it is with that of small industries. Set in the heart of Bihar's tribal belt, the Institute is working in an environment where there is no tradition of entrepreneurship and very negligible growth of light and small-scale industries. In addition, it is dealing with technical graduates who, besides having no commercial background, are conventionally more inclined to seek out the status and security of employment in established organizations. By showing how entrepreneurs can be identified, motivated and trained in the face of these difficulties, the scheme makes a very real contribution to the field of small industry development, given that lack of entrepreneurship is so often cited as being a major impediment.
As far as possible, the report concentrates on these key themes of replicability, integration, and entrepreneurial development. Since it is important to look at the scheme within the context of its geographical, economic and social environment, Section 2 gives a brief account of the Bihar economy and of the numerous programmes and facilities which exist to assist small enterprises. Section 3 looks at the history, growth, objectives and methodology of the scheme, while the way in which it works is further expanded in Section 4 by means of seven case studies. Section 5 attempts to assess what can be learned from the scheme and compares it with the performance of related centres elsewhere in India. Section 6 looks at SIRTDO's work on rural industrialisation and rural development. Finally, Section 7 presents some major conclusions and recommendations.
CHAPTER 2
THE ENVIRONMENT FOR SMALL-SCALE INDUSTRIALIZATION IN BIHAR STATE
Background
The State of Bihar lies in the eastern part of the country and covers an area of 175,000 km2 which makes it the ninth largest State in India. In terms of population it ranks second (next to Uttar Pradesh) among all the States, with 56,353,000 people in 1971, and has a high density of population with 324 people per km2 as compared with only 182 people per km2 for the country as a whole. 90% of the total population is rural as opposed to 80% for India. The scheduled castes and tribes form 14% and 9% respectively of the total population of the State, and in some districts, such as Ranchi, the scheduled tribes account for as much as 60% of the population. The level of literacy is low, being only 19.9% of the population in 1971 as opposed to 29.5% for India as a whole.
The State comprises two distinct and almost equally sized topographical units, namely the plains and the plateau regions. In the north, the flat plains are divided by the river Ganga into the North Bihar Plain and the South Bihar Plain. The soils are rich and alluvial and the area is agriculturally prosperous. However, the very high population density (489 per km2 in North Bihar Plain and 392 km2 in South Bihar Plain) means that agricultural holdings are very small and per capita incomes are very low.
The plateau region of Bihar, known as the Chotanagpur plateau, covers almost the entire southern half of the State. Here the soil is less fertile, but the population is less dense (178 per km2) and agricultural holdings are larger. Drought is common, irrigation is sparse, and given the shortage of non-agricultural employment opportunities in the region, seasonal
migration in search of work is a regular feature. This situation exists in spite of the fact that the plateau is India's primary source of high quality mica and has rich deposits of iron ore, coal, copper, chromite, manganese, bauxite, steatite, asbestos and kyanite. Although Bihar accounts for 44% of the total mineral production in the country, the development of these resources has not been beneficial in terms of providing employment and increased incomes for the majority of the local population.
About 50% of the total land area of the State is under food crops while a further 17% is covered by forests. Principal food crops grown are rice, wheat, maize, ragi and pulses, while cash crops grown consist of sugar cane, oil seeds, tobacco and jute. The main forest products are timber kendu leaves, gum, sal seeds, resin and lac. About 59% of the State's Gross Domestic Product and 80% of the workforce are accounted for by the agricultural and forestry sectors.
The enormous mineral wealth of the State has led to the setting up of many large and medium industries based on these resources. These include: Bokaro Steel Ltd, Coal India Ltd, Uranium Corporation of India Ltd, Tata Iron and Steel Company, Tata Electric and Locomotives Company, Bihar Alloys and Indo-Asahi glass factory. There are also two fertilizer factories, an oil refinery and several cement factories, distilleries, mica industries, ceramic industries and rice and jute mills.
There are several thousand small-scale industries in the State, which are involved in a wide range of goods but concerned mainly with metal products, wood products, mineral products, machine tools and repairing and servicing. There are also a number of long-standing traditional craft industries of which perhaps the best known is that based on tasar, a variety of wild silk. The mining and manufacturing sector accounts for about 23% of the Gross Domestic Product of the State. However, due to the predominance of large-scale industries, it accounts for only about 8% of the workforce.
The State lies on the arterial rail and road routes connecting all major production and consumption centres of the country, although the plateau region is better served in this respect than the northern agricultural districts. Most areas of the State are provided with electricity although only 20% of villages had actually received electricity by 1975 as compared with 29% of villages for India as a whole. Postal and telephone services are fairly widespread although they appear to be somewhat erratic. There is a network of commercial bank branches in all towns and a fairly good network in the rural areas.
In order to set the problem of small industry development in context, there are a number of key features about the economic environment which need to be stressed.
First, industrial development in Bihar started with extractive industries, followed by heavy metallurgical industries. It was not preceded by the development of light capital goods or consumer goods industries, as generally happens in the process of industrialization. While the development of the mineral industry has been beneficial for the entire country, it has not created significant employment opportunities in. Bihar, nor has it led to diffusion of entrepreneurial activities which would have accompanied the development of diversified light consumer goods industries. As a consequence, the economy is characterized by a shortage of non-agricultural employment opportunities, the lack of a sizable small-scale industry sector and a virtual absence of an entrepreneurial class.
Second, although the rate of growth of large-and medium-scale industries has been increasing in recent years, this has not resulted in a significant increase in the number of job opportunities. At the same time, there has been a very limited increase in the rate of growth of the more labour-intensive small-scale industry sector.
Third, the health of the industrial sector as a whole has been adversely affected in the last few years by severe problems relating to power shortages, and the scarcity and inflationary prices of certain raw materials. Inevitably, small industries have been hit hardest. According to a recent article:
'Power shortages have hampered growth and also forced many entrepreneurs to either close down their units, slash production, or retrench employees. Small units are the worst casualties of the power famine. According to reports, production worth Rs 1500 lakhs has been lost in these small units, due to power shortages in 1979-1980.'
Similarly, small units have greater trouble than large industries in securing adequate supplies of raw materials at government-controlled prices. They are also less likely to be able to stockpile raw materials as a guard against inflation. This is a disadvantage, given that the prices of basic metals – upon which many of the State's small industries rely – have more than quadrupled in the last six years.
Policies for the promotion of small-scale industries
Like all other States, Bihar has its own policy framework for industrial development and its own package of policy measures for supporting small-scale industries. While these generally follow the broad guidelines set out by Central Government, the implementation of assistance programmes is the responsibility of the State Government.
As will be seen in the following pages, there exists a multitude of institutions, facilities and incentives which theoretically should meet almost every need and problem which a small entrepreneur could face. Indeed, the small entrepreneur in Bihar and elsewhere in India appears to be positively pampered in comparison to those in other developing countries. In practice, however, despite constant evaluations and revisions in small industry programmes, many small entrepreneurs (especially those in industrially backward areas such as many districts in Bihar) seem to have great trouble in realizing the potential benefits involved. This difference between theory and practice is an important one to bear in mind.
