Issues of Sub-Contracting in Small-Scale Enterprises in India in the Face of Liberalisation

Abstract

The remarkable shift in policy directions in the 1990s has exposed the SSEs to market competition in a significant way. While in the pre-liberalization era the SSEs were protected from competition from large-scale enterprises and imports and they had isolated sheltered markets due to geographical and product market segmentation, policies of dereservation of items, reduction of tariffs, and removal of quantitative restrictions on imports and entry barriers on multinational corporations (MNCs) have created possibility of extensive competitive threats to these enterprises. This competitive pressure on the SSEs has been intensified further with the financial sector reforms that have squeezed the benefits of lower interest rates and priority sector lending, and reduction in price control that has taken away the advantages of obtaining scarce raw materials at nominal prices. In this new policy regime, the SSEs should, therefore, be able not only to compete with the LSEs, MNCs and imports in the domestic market, but also to export successfully without any external support in the international market. This means that the SSEs need to improve their competitiveness significantly by enhancing productivity, efficiency and quality of product and services for their survival and growth. Developing sub-contractual linkages with larger firms (both domestic and foreign) might be an important strategy for the SSEs in this regard. The present paper, thus, emphaises on subcontracting as a novel way out for SSEs to take a new turn in their growth path in the current globalised competitive industrial environment.