Discuss the policies for promotion of Rural Industries in India.


just after independence, the government has laid stress on rural industries, which were mostly of the tiny and cottage industry. In these industries, the traditional crafts and goods like food, clothes, agricultural implements, etc. were included and these industries were run by labor of the household, with no extra hired labor. These cottage industries were the same as ‘traditional artisanal crafts’.

The distinction between cottage and SSI was that the former included manual operations conducted by own labor, while the latter included mechanized operations and at least one hired labor. The government was focusing on the cottage industries to create employment opportunities and solve the problem of unemployment in rural areas.

The Second IPR and Second and the Third 5-Yr. Plans.

The second Industrial Policy Resolution (IPR-1956) combined the industries into cottage, village and small scale sector. The difference between the large scale and the small scale sector was the limit on the volume of production, and the government measures like differential taxation and direct subsidies were given to the CVSS sector.

The government policy emphasized that a majority of consumer goods must be produced by the small scale and cottage industries and their competitiveness must be increased so that these units become self supportive eventually. It is, however, criticized that the clubbing these two enterprises meant the government was not very focused, these establishments has problems of different kinds, so they required separate treatment.

Their scale of operation is quite different from each other, cottage industries are very small and SSIs are much larger in comparison. Close of 85-90% of the rural population was engaged in cottage industry, so there was need to give special attention to these establishments.

The plans focused on two aspects expansion of industries in rural areas and up-gradation of the traditional CVSS to modern small scale industrial unit, which however did not happen on a satisfactory level. To link the rural industrialization and the agricultural sector, 26 pilot projects were launched in certain community development blocks. From the results of these projects, a Rural Industries Project (RIP) programme was launched in the third five-year plan.

Through the development of the village and SSIs (VSI), the government aimed to achieve balanced regional development, and thereon the Village and Small Scale Industries (VSI) were delinked from the cottage and village industries, so that sufficient emphasis could be laid on both.

Rural industries and the Backward Area Development Plan (IVth and Vth plan).

In the 4th plan, the development of industries in rural areas was combined with the Backward Area Development Program, according to which small towns and rural areas would have growth centers for widespread development.

The government launched a programme to provide financial, fiscal and other support services like supply of raw material, stopurchase, price preference, quality control, etc., as per the recommendations of Wanchoo and Pandey working groups. In the 4th plan this programme was extended to 49 towns/districts and in the fifth plan it covered all towns with a population of up to 15,000 and later reoriented it to cover towns of more than 15,000 population.

Sixth and Seventh 5-yr Plans: Greater Focus on Village and Cottage Industries.

The District Industries Centers were started in 1978 to promote the Village and Small Scale Industries (VSI) in each district, and it was planned to pay special attention to the ‘tiny sector’. Special laws were made for the cottage and household industries to give them special attention. Many analysts believed that it was because of the traditional artisanal character in the cottage and village industries that they remained in a static state and their dynamic nature was not exploited, which was the roadblock in their development. They supported their view with two agreements:

Firstly, the three sectors depended on each other for their growth and also contributed to the overall growth in the economy. Secondly, there was need to make the CVI units technologically upgraded and superior. The seventh plan, thus, laid emphasis on increasing the productivity of the VSIs by enhancing product quality, achieving cost reduction, and restructuring the product mix through technology up-gradation and modernization.

The special wing of the Industrial Development Bank of India (IDBI) was created to oversee credit availability to the tiny sector by coordinating the activities of the various institutions in giving credit to them. It discourage artisans from migrating to urban areas, a separate commission for village industries and artisans was suggested in the 7th plan document.

Post-Liberalization, WTO Compulsions and Dilution of Unconditional Policy Support.

As per the new Industrial Policy, competition and market orientation became the mantra rather than the protectionism of the earlier policies As per the liberalization process which was initiated in 1991, a new classification of export-oriented units was introduced in the SSI framework.

The CVI and SSI units were differentiated and the CVI units were given benefits like easy institutional finance, priority in government purchase for any number of times, while for the SSI units they could make a one-time purchase. Instead of focus on easy credit, the SSI units were helped with sufficient funds at the right time (focus changed). Legislation was passed to ensure timely payments to be made to small and tiny enterprises (Prompt Payment Act).

Another step was to develop the linkages between agriculture and industry by introducing a new scheme for development of integrated infrastructural development. Since liberalization, market signals of price and demand have been given more importance despite the government initiatives. In this direction, the steps taken by the government are:

  • Phasing out of subsidies.
  • Less budgetary support to the industries, and
  • More dependence on private initiative and capacity to absorb risk.

Ninth to Eleventh Plan Periods.

The focus in the ninth plan was to give easy credit facilities to the tiny and small scale industries under priority lending by the banking sector. Special financial packages on rates as low as 1 percent under the National Small Industries Corporation were announced. The MSME (Micro, Small and Medium Enterprises) Act, meant to promote, develop and enhance the competitiveness of these enterprises.

The objective of the act is to provide solutions to needs of bank credit, capital, technology, skill development, markets, etc to small enterprises. In 2006, 76% employment in the manufacturing sector was provided by own account enterprises, and if to this enterprises hiring below five workers are added, then it amounts to 86.9%, showing that these tiny enterprises provide the maximum amount of employment an the manufacturing sector.

The major programs initiated by the government of India in the 72 years after independence are:

  • Establishment of khadi and Village Industries Board, National Small Industries Corporation and Small Industries Services Institute (1956-61).
  • Integrated Rural Development Program (1978).
  • Scheme for setting up of Integrated Infrastructural Development (IID) centers (1989-91).
  • District special employment programme (1992-93) for employment generation in 71 backward districts in 24 states.
  • National project on village industries (1994) for promoting hand-made paper industry, leather industry and bee-keeping industry.
  • Rural employment generation programme for the development of khadi and village industry.
  • Cluster development programs for bamboo and cane industry (1998-99) .
  • National programme for rural industrialization (1999-2000) for promotion of 100 clusters each year.
  • Prime Minister’s Rozgar Yojna (2002-03) for promotion of agro-rural industries aimed at generating 7.6 latch employment in two years, and
  • Establishment of Small Industries Development Bank of India and the National Bank for Reconstruction and Development (NABARD).
  • MSME
  • Make In India 2014.
  • Digital India 2015.
  • Startup India 2016.

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