Sunday, December 16, 2012

Guwahati University - M.Com Solved Assignments - Paper IV (1st Year)

Q.N.1. Discuss the role of Small, Cottage and medium scale enterprises in the economy of India.
Ans: Role of Small-Scale and Cottage Industries in India
All industrial units with a capital investment of not more than Rs. one crore are, at present, treated as small-scale units. For ancillary units i.e., those supplying components etc., to large-scale industries and the export-oriented units, the limit of capital investment is also Rs. one crore. Industrial units with an investment of up to Rs. 25 lakhs belong to the tiny sector. It may be noted that capital investment covers only investment in plant and machinery, land and factory buildings are excluded. As per this classification all industries with capital investment higher than specified for small-scale units are large-scale industries.
                The small-scale industries contribute a lot to the progress of the Indian economy. They have also a great potential for the future development of the economy. Let us discuss their role in detail.

a)      Large Scope for Employment: The small-scale industries provide large scope for employment on a massive scale. In 2001 the employment generated in this sector was 19.2 million. This is of great significance for a country like India which is a labour-surplus economy, and where labour-force is increasing at a very rapid rate. Moreover, the small-scale industries being labour-intensive they employ more labour per unit of capital for a given output compared to the large-scale industries. This is evident from the fact that the small-scale sector accounts for as much as 80% of the total employment in the industrial sector.
The small-scale industries are also specially suited for overcoming various types of unemployment in the rural and semi-urban areas. With little capital and other resources, mostly available locally, these industries can be set-up everywhere in the country, even at the very door-step of the workers. For this reason the small farmer and agricultural worker can combine their work in agriculture with that in these industries. Further, these industries provide part-time as well as full time work to rural artisans, women, and poor of the backward classes.

b)      Large Production: The small-scale industries also contribute a sizeable amount to the industrial output of the country. Out of the total output of the manufacturing sector, as much as 40% comes from these industries. And out of the total supplies of industrial consumer goods a major part originates in the small-scale sector. Almost all the products of this sector are in the nature of consumer goods, with a significant part consisting of luxury goods. The adequate availability of consumer goods plays an important role in stabilizing and developing the economy.

c)       Large Exports: Many products of the small-scale industries like handloom cotton fabrics, silk fabrics, handicrafts, carpets, jewellery, etc. are exported to foreign countries. Their share in the total exports is as much as 40%. In this way the small-scale sector makes a very valuable contribution to the accumulation of foreign exchange resource of the country.

d)      Balanced Regional Development: small scale industries promote decentralized development and help to remove regional disparities in industrialisation. Decentralized development contributes to the process of self-sustained growth and avoids concentration of industries in particular areas. By providing employment in rural areas they help to check migration and overcrowding in urban areas. Small scale firms can be a useful means of rural reconstruction and development. Development of decentralized sector also improves the standard of living of people in backward regions.

e)      Optimization of Capital: Small scale firms require less capital per unit of output and, therefore, greater output can be obtained with small investment. The Annual Surveys of industries reveal that fixed capital per employee in case of small scale industry was Rs. 3,706 as compared to Rs. 27,757 in case of large scale industry. Small firms also provide quick returns after their establishment on account of short gestation period. In India where the rate of capital formation is low, small scale industries are very suitable. 

f)       Feeder to Large industries: small scale sector is complementary to the large scale industries. Small scale industries manufacture various types of components, spare parts, tools and accessories which are required by the large scale sector. 

g)      Use of Latent (domestic) resources: The small-scale industries used resources which are available locally which would otherwise have remained unused. These resources are the hoarded wealth, family-labour, artisan’s skills, native entrepreneurship, etc. Being thinly spread throughout the country, these resources cannot be used by large-scale industries which need them in big amounts and at a few specified places.
Besides using these resources, the small-scale industries provide an environment for the development of forces of economic growth. Using the hoarded wealth, these industries put into circulation savings which propel investments in the economy. These industries also provide opportunities to the small entrepreneurs to learn, to take risks, to experiment, to innovate and to compete with others.

h)      Promoting Welfare: The small-scale industries are also very important for welfare reasons. People of small means can organize these industries. This in turn increases their income-levels and quality of life. As such these industries help in reducing poverty in the country. Further, these industries tend to promote equitable distribution of income. Since income gets distributed among vast number of persons throughout the country, this help in the reduction of regional economic disparities.
Another advantage of great significance of these industries is the upgrading of the lives of the people in general. The freedom to work, self-reliance, self-confidence, enthusiasm to achieve and all such traits of a healthy nation can be built around the activities performed in these industries. It also becomes possible to preserve the inherited skill of our artisans which would otherwise disappear. Moreover, many ills of urbanization and concentration inherent in large-scale industries can be avoided by setting up of small industries. All these benefits flow from the fact that these industries are highly labour-intensive, and that these can be set up anywhere in the country with small resources.

Q.N.2. In What way, would you differentiate economic growth from economic development specifically in the context of Indian economy.
Ans: Economic Growth Vs Economic Development
The term development may mean different things to different people. In strictly economic terms, development has traditionally meant a sustained annual increase in GNP (or GDP) at rates varying from 5 per cent to 7 per cent or more. A common alternative economic index of development has been the rates of growth of per capita GNP i.e., the ability of a nation to expand its output at a rate faster than the growth of population. Levels and rates of growth of "real" per capita GNP i.e., monetary growth of GNP per capita minus the rate of inflation, are normally used to measure the overall economic well being of a population.
                Till the 1960's, the term economic development was often used as a synonym of economic growth, the measure for the latter being the rise in per capita GNP in real terms. According to C.P. Kindleberger, "whereas economic growth merely refers to a rise in output, economic development implies changes in technological and institutional organisation of production as well as distributive pattern of income."2 Thus economic developments is a broader concept than economic growth.
                Compared to the objective of development, economic growth may be easy to realise. By larger mobilisation of resources and raising their productivity, output levels can be raised. The process of development is far more extensive. Apart from the rise in output, it involves changes in the composition of output as well as a shift in the allocation of productive resources to ensure social justice.
                In some of the underdeveloped countries, the process of economic growth has been accompanied by economic development. But this may not be the case always. While there can be growth without development, development without growth is unconceivable. A substantial rise in a country's GNP is required before it can hope to expand its industries and the services sectors. Nowhere in the world has the occupational distribution of population changed in the absence of growth.
                Prior to the 1970's, development was seen as an economic phenomenon in which rapid gains in overall and per capita GNP growth would either "trickle down" to the masses in the form of jobs and other economic opportunities or create the necessary conditions for the wider distribution of the economic and social benefits of growth. Problems of poverty, unemployment and income distribution were of secondary importance to "getting the growth job done."
                It is correctly recognized that the terms economic development and economic growth are taken as synonym. But, Prof. Schumpeter in his book "The Theory of Economic Development" (1911) has made clear distinction between economic development and economic growth. Similarly, Ursula Hicks, Alfred Kindleberger etc. have also laid stress on the different meaning of these terms. The main points of differences between them are stated below:
                (i) Single Dimensional and Multi-Dimensional:
                Economic growth is single dimensional which is concerned with increase in national and per capita income. On the contrary, economic development is multi-dimensional. It is concerned with both income and structural changes. In fact, economic development is a broad term.
                (ii) Qualitative Changes:
                In the opinion of Prof. J.K. Mehta, the terms development and growth are not synonymous. 'Growth' is quantitative whereas 'development' is qualitative.
                (iii) Spontaneous and Discontinuous Changes:
                To quote Prof Schumpeter, "Development is discontinuous and spontaneous changes in the stationary state which for ever alters and displaces the equilibrium state previously existing while growth is a gradual and steady change in the long run which comes about by general increase in rate of saving and population." Therefore, the term 'development' is used for spontaneous and discontinuous changes. The term 'growth' is used for continuous and steady changes.
                (iv) Economic Development implies Economic Growth:
                Some economists used the term economic development to describe the determinants of economic growth, such as changes in techniques of production, in social attitudes and in institutions. Due to these changes the national income increases and is called economic growth. In this regard, development is the determinant of growth.
                (v) Special Problems of Underdeveloped Countries:
                Prof. Ursula Hicks has correctly stated, "Development should relate to backward countries, where there is possibility of developing and using hitherto unused resources. The term growth is applicable to economically advanced countries, where most of the resources are already known and developed."