The insulation of industry from the dynamics of competitive growth has resulted in poor technology and the setting up of unviable units. To survive global competition, Indian small and medium enterprises have to overhaul their strategy. Technological upgradation, innovative marketing policy, product diversification, branding development and so on should be the thrust areas. The government should provide the necessary assistance, given that there is still a lot of scope for subsidies and protection even in the post-WTO era.

            As part of the liberalization policy, import duty and other restrictions are being removed fast. Export-oriented small industries should benefit from this as imported raw materials are now available at a cheaper rate. This could result in lower costs of production and improved “market access”. Some of the small industries that produce only for the domestic sector might also get some cost benefits, but others will have to face the blow of WTO regulations, particularly the lifting of the QRs.

             The latest round of QR removals has generated dissatisfaction among the small and medium enterprises, many of whom fear an upsurge of imports in the QR-free era. Moreover, whether exports from this sector will get government subsidy is being questioned. But there are instruments available even in the post-QR era, which may be useful to tackle the problem.

            The removal of QRs is one of the important components of the ongoing liberalization policy. About 714 items have already been freed on April 1, 2000. QRs on the remaining 715 products will be eliminated by April 1, 2001. There is still the protection of tariffs for the domestic industry. India has the right to increase its applied rates to appropriate levels, wherever the tariff rates are either unbound or the bound rates are higher than the applied rates, upto the bound levels.

             Out of 714 products, from which QRs have been removed, 346 products are unbound. Among 368 bound products, it is found that in the case of 345 products, the applied rate is less than the bound rate. An almost similar kind of protection is there for another 715 products, which will be freed in April 2001. Out of these 715 products, 440 are unbound, 117 products have bound rates greater than or equal to 100 per cent. This clearly implies that the government has enough leverage to increase tariff rates in case of urgency.

             Apart from tariff, protection against unfair imports is also allowed in the case of dumping or subsidized exports through the imposition of antidumping duties and countervailing duties respectively. Even in the absence of unfair trade, a WTO member may restrict imports of a product temporarily if its domestic industry is threatened by a surge in imports.

            The agreement on subsidies and countervailing measures prohibits a country to use “export subsidies”, which has a significant trade-distorting effect but allows only “permissible subsidies”. Permissible subsidies allowed to exporting countries can be actionable and non-actionable. Countervailing duties can be applicable against any actionable subsidy.

             In India, the export promotion capital goods scheme, certain income tax benefits and so on are considered as actionable subsidies. Subsidies to small scale industries could also be brought under permissible subsidy if it is made “non-specific”. This clause of the agreement must be interpreted properly to promote export from the small scale sector.

            Also, because it is possible in the post-QR regime that low quality cheaper products will flood Indian markets, it is necessary to set proper “standards” to check the import of poor quality goods.

            QRs on as many as 6,161 tariff lines were removed on March 31, 1996. And since then, 1,905 tariff lines for imports had been made free till the beginning of the year 1999-2000. Import growth rates since 1995-1996 have come down substantially, which disproved the fear of swamping by imports because of the removal of QRs. As detailed import data are not available for the post-March period, the impact of the recent lifting of QRs from 714 products cannot be analysed properly.

             The total import during April-July 2000 increased by 24.6 per cent compared to the same period in 1999. It increased by 41 per cent in April 2000 compared to April 1999.

            Indian exports from the small scale sector may not be badly hit as the economy is opening up. In fact, it may get some cost advantages if cheap imported raw materials are used. But the question remains regarding the “market access” of India’s exports.

             The existence of several non-tariff measures prevalent in many countries works as one of the main stumbling blocks for Indian products. Some of these measures are WTO-consistent too. The agreement on technical barriers to trade, sanitary and phyto-sanitary measures and environment-related provisions will act as a hurdle for trade even in the post-WTO regime. Many of India’s exports of electrical machinery, consumer goods, pharmaceuticals have been either rejected or considered for further tests for standardization on such grounds.

             So it has become mandatory for Indian companies to upgrade the standard of manufacturing and to use cleaner and healthier techniques to produce food and agro-products to increase the volume of exports. Small scale producers with limited resources and technology will have difficulties in upgrading their products to the international standard.

             Developed countries often protect their domestic producers using these clauses as excuse. India must negotiate these issues in the WTO meeting. On the other hand, a large number of small scale industries, such as tanneries, iron foundries, metal plating, glass manufacturing, paper and pulp making units are engaged in manufacturing which create pollution.

            India should take up a proactive stand rather than a reactive stand to combat the pollution problem. It should opt for clean technology to consolidate its strength on the trade environment issue. Installation of combined effluent treatment plants, ensuring credit facilities to small producers for modernization, labelling environment-friendly products are necessary steps to make Indian products more competitive internationally.

            To sustain the blow from the international arena, it is necessary for the small and medium enterprise sector to develop certain strategies to enhance their skills and competitive strength. The sector should understand the WTO rules clearly. The thrust should be on marketing and brand development. The sector must upgrade its technology so that productivity level is not compromised. The incentives given to it should be utilized optimally.

            India needs to be developed as a sourcing point and sub-contracting base. This will help the small and medium enterprise to develop dynamically. Clusters of these have to be formed with databanks comprising related information at district levels. The service sector must be made WTO compatible. India also needs to negotiate the existence of high tariffs and non-tariff measures imposed by many countries on exports from this particular sector
 
                                                                                                                      Contributed By
                                                                                                                       Biswajit Nag
                                                                                                                       Assistant Professor at IIFT