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Impact of 1991 Economic Reforms on MSMEs

Small scale industries occupy a strategic place in an economy like in India given their pivotal contribution to employment, production, and exports. The liberalization policy of 1991 is one of the most stimulating changes in the Indian economy which changed the market operations significantly. The main objective of the liberalization policy was:

1) To enhance budgetary receipts

2) To reduce budgetary support towards loss making units.

3) To improve outcomes by bringing out changes in ownership and performance by inducing disinvestment.

4) To ensure long-term viability and sustainable levels of employment in public sector enterprises.


Now focusing on how this major industry got affected by the policy, we have to understand how the working was before. Any firm regardless of its scale of operation had to obtain a license from the government for producing goods and the government would itself dictate as to the amount of output and the type of goods brought to the market. This restricted innovation up to a massive scale and did not give a free space for small scale industries to stand out and compete and for a long time This did not cause any adverse impact when the economy was closed, since the government protected the industry with grants, concessions and institutional facilities to keep them afloat. However, the government neglected the independent growth of these units under a competitive business environment. Later, when the government was under excessive distress, it did not consider making the small-scale industries ready for the market to become open to competition resulting in many businesses being buried to the ground.


The MSMEs had a challenge and opportunity in their hands when the economy had been liberalized. The industries could compete domestically and internationally on cost, quality, and products only if they had received ideal investment in technology, production process, R&D, and effective marketing. Nonetheless, the Indian economy still had infrastructure bottlenecks and they struggled to keep up. The government had to improve credit flows, human resource development, relevant technology, and funds for modernizing the production process but the government was too late to realize this and only the ones which survived the disaster were able to receive the benefits in 1999 industrial policy which is 8 long years since the reforms had been brought into place. The government introduced the industrial policy of 1999 which supported Indian producers with the required infrastructure to compete in the market filled with foreign competition .


However, over the years, the government took actions to improve the state of such an indispensable sector of the economy which flourishes the country with employment opportunities, variety of goods available in the market, and constant supply but the impairment caused to the industry still stands to be recovered. The variety in the demand structure of the economy makes it necessary for the nation to have small-scale industries and hence the government has to ensure that its long-term existence is insured before the next major economic change.

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