Development of small-scale industries in Pakistan.

Development of Small-Scale Industries in Pakistan

INTRODUCTION

There is a permanent place for efficient and progressive small-scale industries in modern industrial economies as is evident by the existence of a large number of small units alongside the giant enterprises in advanced countries such as Japan, UK, USA and Germany. The opportunities for such industries to grow and survive in Pakistan are technology for its large-scale industries that involve high costs. In the post Second World War era, emphasis given to large-scale and heavy industry was common in the development programmes the world over. Now with the growing consciousness of distributive justice rather than maximising growth rates, escalation in the cost of capital inputs and abundant labour potential, small and medium sized industries are receiving attention of the planners in developed as well as developing economies. This has brought such industries into sharper focus in the development programmes and policies of Pakistan as also in other developing countries of the world. To support his policy of rapid industrialization the Prime Minister announced a number of measures/concessions which form part of the country's latest industrial policy package. Some of the Key incentives are given by the present Government are as under:

1) Income Tax Holiday 2) Exemption from custom duty 3) Income Tax rebate on exports. 4) Simplified and easily available

industrial loans. 5) No Government approval to be required

except for few industries. 6) Privatization policy. 7) Encouragement to transfer of

technology. 8) Preference to Industries being set up

near raw material sources.

Definition of Small Industry

Small industrial project can be defined as an industrial undertaking belonging to a family or a set of associates wholly and independently owned employing limited number of workers say between 5 to 50, notwithstanding the exceptional situations, having moderate financial means and generally producing either the end products for consumers at large or primary products for usage by larger units. In the industrial policy statement of Government of Pakistan the definition of small scale industry is stated as an industrial project with fixed assets (excluding land and buildings) the original cost of which does not exceed Rs. 20.00 million before grant of loan.

Significance

Small and medium scale enterprises have traditionally received particular Government attention, as it has a vital role in the economy of a country particularly in the under developed world. In Pakistan it accounts for 30 per cent of the value added in manufacturing sector and more than 5 per cent of GDP compared to the contribution of 12.5 per cent of the large scale industry in the private sector. The share of small industries sector in the merchandise export is 18 per cent, the small enterprise sector encompasses both formal and informal activities. It covers all spheres of business and industrial sectors and is composed of from a sizeable modern factory to thousands very small units existing in unorganised sector.

Being labour intensive, contrary to popular belief, it exhibits relatively better levels of efficiency and better productivity. In Pakistan it employs 81 per cent of the labour force in the manufacturing sector alone. It also provides training grounds in the development of technical skills, marketing experience and managerial capabilities. The development of small scale industries has thus a strong socio economic impact in the third world countries particularly where the labour is available at comparatively cheaper cost and there is acute un-employment problem. Further more it requires smaller capital and generates greater employment opportunities. Disseminates great benefits of economic growth, has shorter gestation period. It has the substantiality of whithering the worse adversities of recession as well as inflation.

For a country where graph of population growth is alarmingly ascending, the importance of establishment of small industrial unit is all the more great. Even in the advanced countries such as Japan it is the down stream units of small and medium size which are providing more than 80 per cent of employment and is playing pivitol role in boosting industrial progress in Japan by providing low cost advantage and more and more automation. On the average, large scale manufacturing is five times more capital intensive than the small scale sector. According to the Economic survey of 1985-86, published by Government of Pakistan, creation of one job in the small scale manufacturing sector costs about 80 times more than in the large scale manufacturing sector.

The development of small scale industry is also one of the most effective means of stimulating entrepreneurship in a society. The development of traditional skill into modern "capital goods manufacturing technical ability" is also an important achievement of small industry development.

Institutional Framework

Financing being the most significant among the factors of industrial growth, a wide institutional framework of specialised financial institutions has been evolved over years in Pakistan to cater for the special needs of the small industries. This includes provincial Small Industrial Corporation/Board, IDBP, Small Business Finance Corporation and Regional Development Corporation. Commercial banks also undertake financing of small industries to a significant extent. Thus fairly wide institutional framework exists to meet the growing needs of financial assistance by small-scale industries in the country. The resources mobilised by these institutions supported by credits from the State Bank have contributed towards flows of sufficient funds to the small industries sub-sector. An important recent development leading to the strengthening of the resource base of commercial banks for financing small industries is the availability of special credit line of lending exclusively to small industries from the International Association (IDA). The first such credit of US$30 million became effective in October 1981 the second one of US$ 50 million in October 1984 and third credit line (IBRD) of $ 66.5 million in March, 1988. The Asian Development Bank has also recently extended a credit line of $ 58 million. Under the terms of these credits, the responsibility for selection of sub-borrowers, appraisal of the sub-loan proposals, disbursements, post disbursement supervision and collection rest with the participating nationalised commercial bank. IDBP is responsible for review of sub-loan applications submitted by the participating banks, approval of refinancing again free limit cases, arranging IDA approval for sub-loan proposals, for sub-loan proposals exceeding the free limit and monitoring the performance of the participating banks and sub-projects financed under the credit. It also administers the sub-sector studies and project preparation funds provided under these credits. With the Government's continued patronage and assistance these institutions would be able to play their part effectively in implementing the ambitious industrial strategy being pursued by the present government as a part of the principal objective of self reliance and evolution of a truly welfare state.

In addition to the institutional set up catering for financial needs, a number of schemes under the control and supervision of the Provincial Small Industries Corporations are in operation and provide training in product design and development of professional skills etc. A brief review of such assistance being extended is given below:

Punjab

The Punjab Small Industries Corporation (PSIC) was set-up in 1972 to succeed the West Pakistan Small Industries Corporation as a public sector agency for the promotion and development of small industries.

PSIC has developed small industrial estates at Gujranwala, Faisalabad, Lahore, Sialkot, Gujrat, Sargodha, Jhelum, Sahiwal, Daska, Gujranwala-II, Bahawalpur and two mini industrial estates at Gujjar Khan and Chakwal.

PSIC is running a large number of carpet-weaving centers, ready-made garments and hosiery knitting training and handicrafts development centers. Besides, PSIC operates handicraft shops at various places as outlets for handicrafts produced by workers and establishments throughout the province. PSIC has established a Design Center for the improvement and creation of new designs for carpets and handicrafts. Also, Dehi Mazdoor Training Centers are providing technical training in electrical, mechanical, masonry, carpentry and auto farm machinery trades. In order to provide pre-investment counselling and guidance to prospective entrepreneurs, it has established a Small Industries Advisory Service to provide information on cost analysis, projected profits, machinery requirements etc. to interested investors.

Sindh

The Government of Sindh allocated Rs. 22.552 million for 13 ongoing schemes and Rs. 13.380 million for 15 new schemes in the ADP of 1989-90. Within the framework of the Corporation, those schemes have been included in the programme which provide maximum benefit of training to rural youth in the interior of Sindh, create industrial base and employment opportunities for the local people in all districts. The beneficiaries are both male and female in the traditional and non-traditional skills. Two Institutes of Entrepreneurs are being set-up at Larkana and Sanghar to develop entrepreneurial and managerial skills in the private sector. Similarly, small industries supervisory credit scheme has been started by the Corporation to provide maximum loan of Rs. 0.50 million at 7 per cent mark-up to small investors.

The Small Industrial Estate, Rohri is another opening for district Sukkur. It will-set-up new units. A similar facility has been made available for Hala District. At present various projects are being run by the Corporation which include; 14 small industrial estates, 7 artisan colonies/workshops, 6 handicraft shops, 1 institute of handicrafts and 1 light engineering service center. In traditional and non-traditional craft/trades, the Corporation is running 73 training centers and is imparting training to 2720 persons annually.

NWFP 

The Sarhad Small Industries Development Board (SSIDB) is engaged in developing and promoting small and cottage industries by providing training and overhead facilities, access to bank loans, development of industrial plots/estates and guidance to intending entrepreneurs.

Balochistan

At present the Directorate of Small Industries, Balochistan, is implementing 6 new schemes included in the ADP of 1989-90. Training is being given to boys and girls at 70 centers which are engaged in the development of traditional crafts and trades of the province.

The total sanctioned strength of trainees in these centers is 2306 against which 1800 are on roll. In addition, the Directorate is also extending loan facilities to small investors through the Industrial Development Bank of Pakistan.