Small Firms in Indian Industry-Economic Characteristics and Functioning

This survey-based study evaluates the various constraints faced by small and medium firms in India and makes suggestions for improving their contribution to industrial development. The study points out that the rational for promoting small firms to save capital no longer applies. There is no evidence that small firms are unequivocally less capital intensive than large firms; they do not therefore necessarily save capital and promote employment.

The chief constraint faced by small firms is seen to be that of credit, especially long-term and risk capital. Of the existing government incentives, only interest concessions on loans from official institutions and excise concessions were found to be significant. Abandonment of controls and privileges in all aspects of government policy, the authors feel, aid the small industry much better than direct measures. They conclude that schemes to assist small firms would be a lot simpler and more effective if they were to be based on just two elements designed primarily to help new firms -an indirect tax exemption and access to capital.