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The role of small and medium scale industries in the development of rural sector.

Small and Medium-scale industries (SMIs) can play an important role in the process of a country's industrial and economic development. In particular, SMIs can make significant contribution to achieve social and economic objectives such as labour absorption, income distribution, rural development, poverty eradication and balanced economic growth. The agricultural industrial sector plans stresses the need for a self reliant approach to development. Pakistan's 1988-93 Five Year Plan while presenting the general frame work for the country's economic development, recognizes the existence of a traditional sector and a modern sector. In both sectors the development of an indigenous machine-building industry has for a long been retarded by the unrestricted import of even the simplest types of equipment. Very high priority has now been given to the development of a dispersed small-scale light-engineering industry which will spread technological skills and productive employment in rural areas. Implicit in this policy is a recognition of the value of an existing traditional technology which is basically an indigenous low cost technology. This recognition is itself without precedent. A planned and vigorous pursuit of the progressive improvement of this indigenous technology will serve the objectives of rapid economic development. One of the most perplexing problems that Pakistan face to-day is that of unemployment and under employment. Industrialization, it is generally thought, has not done its share to absorb labour. It appears that the technology which is used early in the industrialization process is capital intensive borrowed from the advanced countries. It has been viewed that the answer to unemployment is to turn to "intermediate technology", technology that involves less capital and more labour than that in general use in more advanced countries. As explained by Mr. Louis TWells, Jr in his article 'Economic Man and Engineering Man' that if the businessman or entrepreneur behave like an "economic man" he should accroding to traditional wisdom, choose an intermediate or a labour intensive technology when operating in a less developed country with low wage rates and high capital costs. By choosing appropriately he will minimize his costs of production and simultaneously raise employment.


The inter-relationship between agriculture and industry are complex. The basic difference between agriculture and industry in that method and practice used in industry have little bearing on farming. Agriculture in fact is the outcome of combined effort made by man and nature for transforming natural resources into food and other raw material. As such decision making in agriculture mainly depends on nature's behaviour. However, the main difference pointed out by J.M. Efferson that exist between agriculture and industry are: 1. variation in the primary sources of production; 2. size of production unit; 3. development of climate factors; 4. frequency and quickness of decision; 5. changes in prices; 6. standardization practices; 7. turn over; 8. organization; 9. length of life and 10. financing.

To overcome these problems a scientific approach is needed which is not so easy to adopt farming because of subject to natural hazards and calamities. The scientific approach is relied on careful planning, by reallocation of resources judiciously under improved conditions. The development in agriculture in a diversified manner mainly depends on the creation of effective demand of produce backed by the fair price in a well organized marketing set up. This is possible only when process of industrialization is done in a most strategic manner keepin in view the nature of farming enterprises carried and its by-products. Thus the role played by the agriculture is to serve as a supplier of food, industrial labour force and the raw material for industry. For this the importance of agriculture in the economic development has come to be recognized increasingly in recent years. Thus industry and agriculture are not mutually exclusive. In fact they are mutually supporter and supplement to each other.

Pakistan has a vast rural sector scattered over an area of 803943 square kilometer, consisting of more than 45000 villages and about 71 per cent population of 105.4 million. The main occupation of our rural populace is agriculture and its allied activities. Majority of rural masses lives below subsistence level, low productivity, lack of infrastructural facilities and low level of achieved opportunities of life and large scale unemployment and under-employment are major constraints in achieving welfare in real terms.

Its Significance

Small and Medium scale industries are important sources of both income and employment to rural people specially of small and marginal holding. As per estimate small and medium scale enterprises accounts as source of employment to majority of populace as part-time or employed in a disguised way. So all of our attention should be to reduce unemployment among rural poor before its situation goes out of control. The extent of rural labour employed as full time on productive avenues is immensely great. Under existing set-up as per source there is capacity of absorbing more than 25 per cent of surplus labour in India whereas 20 per cent in Pakistan in small and medium types of industry. As per estimate unemployed youth age groups 10 to 29, constitute 70 per cent of total unemployed in rural area. As census of agriculture, 1981 to rural labour involved in agriculture accounts 16.852 million out of which 0.387 are those employed as permanent hired workers, 10.789 million those employed as full time workers and 5.67 million as part-timer workers. Besides this more than 2 million has been absorbed as disguised labour sharing as part of net profit on irregular basis. The participation of women in rural sector as productive workers comes to 25.13 per cent as against 74.87 per cent in case of male.

Its Scope

In developing countries with abundant manpower, rural industrialization has a pivotal role to play in the development strategy. Small and medium rural enterprises have certain distinct advantages in higher labour intensity, processing locally available raw materials and meeting consumers needs and at the same time act as breeding grounds for modern entrepreneurs. The efficiency of small and medium rural enterprises can prove by standard of production through a simplified model using only capital and labour. The persistence of small enterprises in DCs and LDCs is a positive proof that they have something inherent and basic in them and they operate successfully side by side with organizational grants.

The rural industrial scene is characterized by lack of availability of reliable and adequate. Sheer, number, diversity and spread are basic causes for this shortcoming. Although rural industrialization have been given emphasis in Pakistan since the inception of planning era yet formulation and implementation of long term policies needs to be preceded by creating of a more comprehensive data and depth analysis. Lack of these may be one of the causes of gaps between macro policies and micro implementation. Agro-based industries in fact are those which are based on processing of both products and by-products of agriculture and its allied fields. As such agricultural industries are those which have forward and backward linkage with the agricultural sector. Some of the agro-based and medium scale industries based on issuing raw material and its by products of which there is possibility of expansion in rural areas are: 1. Food grain milling; 2. Food processing; 3. Dehydration and canning of fruits and vegetables; 4. Sugar mills at large and small scale; 5. Edible oil and solvent extraction plants; 6. Fiber industry; a) Cottage, b) Textiles, c) Ginning; 7. Meat processing-preservation; 8. Poultry processing and preservation; 9. Milk plant; 10. Sericulture; 11. Bee keeping; 12. Furniture industry; 13. Handicrafts and arts; 14. Carpet making; 15. Pulses factories; 16. Poultry; 17. Black smithy; 18. Implements manufacturing; 19. Date processing; 20. Basket, brooms, local fans making; 21. Shoe making; 22. Shawls making; 23. Freezing and cold storages; 24. Tubewells instalment; 25. Farm equipments making; 26. Farm machinery pool centers; 27. Repair workshops; 28. Cold storages; 29. Godowns; 30. Local embiology; 31. Local caps; 32. Up-holstry; 33. Brick making; 34. Poultry farm/hatchery; 35. Dairy farm/breeding and fattering; 36. Feed mills; 37. Chip board/straw board plant; 38. Potato chips; 39. Spices plants; 40. Fertilizer plants; 41. Tissue culture; 42. Vegetable farms; 43. Fruits farm; 44. Seed processing plants; 45. Silk industry; 46. Wild animal breeding; 47. Rendering plant; 48. Flowering nursery; 49. Fruit nursery; 50. Grain dryers; 51. Transportation pool centres; 52. Sewing, knitting and lac carriage; 53. Candle and match making; 54. Rope making; 55. Tap making; 56. Embroidery machine; 57. Makrama making; 58. Khaddi for making coarse cloth; 59. Duree and khais making; 60. Mat making; 61. Cultivation of specializes crops like Mushroom, ginger and celery; 62. Soap making; 63. Leather processing; 64. Small mechanical workshop; 65. Vegetable production; 66. Wood winder; 67. Wood processing jams/jellies and ghee production; 68. Inland fisheries and rearing of pet birds like ducks; and 69. Feed mills etc.

Although emphasis has been on establishing of small and medium types of industries in localized areas, yet no breakthrough has been made mainly because of the absence of basic infrastructural facilities, like road, electricity, transport, vocational institutes and regulated market. The present regime for improving the existing various measures in which introduction of People's programmes, Establishment of Board of Investment (BOI), for quick disposal of viable industrial projects, setting up of industrial complex in less developed areas, tax holiday, liberal provision of credit through specialized development banks, DFIs and commercial banks. Policy towards privatization, de-regulation measures in respect of various import and licensing liberal policy and investment by realizing need for setting up Investment Promotion Bureau (IPB) for designing Industrial Pakistan package for convenience of foreign investors and overseas workers. These measures will certainly help in creating healthy environment for investment in private sector which is the sole aim for envisaging such a liberal and dynamic policy by the present democratic government. Some of the recommendations for its further improvement are made as under:-


i) Macro Economic Policy: Based on the experience of SMIs during the post war industrial period of Japan, South Korea, Philippines and Thailand, the macro policy frame-work that best suits SMIs is one which allows them to emerge and grow on equal footing with large scale industries (LIs). This needs thorough review and framing a policy that suit to us in real way. There is no substitute to cooperation and self help which has yet to be tried and made as part of our policy at macro level on the pattern of South Korea.

ii) Trade Policy: There is need for a periodic review of the system of effective protection and promotion to ensure welfare of SMIs. There is need to adopt such policy that eliminate the unnecessary regulated measures that hinders the investment. Such measures will certainly help in encouraging the growth of efficient domestic machinery and engineering industries that help improving SMIs technological capabilities.

iii. Investment Policy: Where SMIs are handicapped by the requirements of preparing feasibility studies and other technical know-how, the Planning division and DFIs and Development Banks can offer the necessary technical skill. Further the decision making powers should be decentralized for regional dispersal and growth of industries particularly SMIs.

iv. Human Resources Development: Style of management that best suits Pakistan labour needs to be evolved for which emphasis on imparting training on HRD be made compulsory for all industrial complex.

v. Technology and Equipment: Emphasis on exploration of viable technology, its indigensation and dissemination needs to be laid. Further the programme that brings the local entrepreneur in contact with technological sources in other countries should be supported and expanded.

vi. Foreign Investment Policy: Foreign investment that are more directly beneficial to SMIs growth much be given priority. Laws can be enacted and incentive given to promote foreign investment and early transfer of desirable labour intensive technology.

vii. Finance and Fiscal Policies: All effort should be directed at keeping financial market as liberal as possible. There is need to avoid cumbersome procedure for providing cheap credit for encouraging private entrepreneurships. All the protection measures needs to be rationalised and weightage be given to value added manufacturing units specially to export oriented industries.


The Pakistan villages hold the key to her future. The lack of adequate achieved opportunities of life, liberalised clear cut policy and planning at gross root level do not allow any circle to enter into business in rural areas. The policy envisaged by present democratic government will certainly bear favourable repercussion in establishing SMIs in stagnant rural sector. It is thorough establishment of small and medium scale industries alone that will not only modernize agriculture but will absorb surplus rural labour force at massive scale which is the most chronic problem of the day. The role of government no-doubt is to create favourable environment for sustaining growth within a global economy.
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Author:Khan, Rao Abdul Raul
Publication:Economic Review
Date:Feb 1, 1990
Previous Article:Pakistan's pharmaceutical industry.
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