The decades old MSME reservation policy or the goods reserved for the erstwhile Small Scale Industries has been removed. In the latest measure, government has removed twenty items including match box and fireworks which were reserved for the sector from the list. With this, the MSME reservation policy that the government has pursued over the last four decades comes to an end.
The MSME reservation policy was aimed protect them from big industries. Reservation list included nearly three thousand goods in the early nineties when the policy of de-reservation was initiated.
India has one of the largest MSME sector in the world providing employment, production and exports. There are many support policies for the sector including the institution of SIDBI (Small Industries Development Bank of India) which provide credit support to the firms. Recently, the government has created MUDRA bank for micro units.
Despite its long tradition, the MSME reservation policy has not benefited the economy or the MSMEs themselves. Most of the small scale firms never adopted good technologies or quality oriented production standards in the production of the reserved products.
They often have shown a tendency to ‘remain small’ to get the benefits of subsidies etc from the government.
With liberalization, close substitutes of the MSME reserved products were cheaply imported by business from large scale producers in China.
On the other hand, Indian producers with the capacity to adopt improved technological capability remained outside because of the reservation policy.