Scrap Reservation

Updated: Sep 21 2004, 08:42am hrs
The governments reported decision to prune the SSI list by 85 items, most of which are consumer items is unreservedly welcome. In fact, the UPA should gather political courage and scrap reservation altogether.

For two reasons. In todays fiercely competitive world, sops have limited utility and protectionism has none.

Indeed, only the fittest can hope to survive and prosper. In this regard, look no further than at China. Today, its mammoth share in the world trade pie is purely on account of it successfully utilising technological innovation and harnessing economies of scale to emerge as a dynamic, low-cost, and high-quality manufacturer of goods.

Reservation, on the other hand, breeds inefficiencies in two critical ways: It gives SMEs incentives to stay small and unorganised, and at the same time, it blocks entry of large enterprises with access to much-needed technology and capital.

Which is exactly why India has been unable to diversify its export basket, or increase the component of value-add in its exports, or increase its share in global trade.

Second, reservation is highly discretionary. Note that quantitative restrictions have gone; import licensing is mostly a thing of the past; tariff walls are lower than ever before; and investment norms more liberal than in the past.

Clearly, then, our small enterprises already compete against products manufactured by large-scale enterprises internationally. There is thus no rationale for denying our large-scale manufacturers the right to manufacture these same items.

The UPA should thus heed the recommendations of the Abid Hussain committee and liberalise all those key labour-intensive products 590 items in all which remain on the SSI list.

That said, it is more than likely that the Left, key allies of the present government, will oppose any such move on political grounds.

The government ought not to succumb to their pressure. It must remember that competition is an employment-generator like none other.

Indeed, numerous studies have indicated that units in the unreserved sector have actually grown faster, and created more jobs, than those in the reserved list. Whats more, the UPA must now also press ahead with vital labour reform. For, the latter is essential if de-reservation is to bear fruit.