Research Proposal ON

A Study on Capital productivity of Small & Medium Scale industries in Karnataka.

BY SHASHIKIRAN.L Assistant Professor Community Institute of Management Studies Submitted to Pondicherry University

1.

Introduction

Output per unit of value of fixed production assets (fixed capital). In an economy, capital productivity characterizes the efficiency with which fixed capital stock is used. It is commonly employed in economic analysis and in the formulation of production plans and plans for capital expenditures, both for the national economy as a whole and for individual sectors, production associations, and enterprises. Data on the gross social product and on national income (from productive activities) are used in calculating capital productivity for the national economy as a whole; for calculating the productivity of individual sectors, data on gross (commodity) or net output are used. In sectors where the output is homogeneous (petroleum, coal, cement), physical units are sometimes used in the calculations. Capital productivity is calculated on the basis of the balance valuation of the fixed production assets (depreciation costs included), using either the average value over the year or the value as of the end of the year. Capital productivity is the reciprocal of the capital-output ratio. Karnataka has been a pioneer in Industry. For several years now, the State has been consistently pursuing progressive Industrial policies to meet the changing needs of the State's economy and Industry. Over the last 100 years, the State has had the distinction of building a strong and vibrant Industrial base, which combines the intrinsic strengths of large industrial public sector undertakings, large and medium privately owned industries and a very wide and dispersed small scale sector. The State has demonstrated its strength over a wide spectrum of sectors in industry and has outstanding examples of success in the old economy. In recent times, Karnataka has emerged as the knowledge and technology capital of the country making rapid strides in the new economy as well. IT and related industries, bio-technology and strong research and development institutions have given Karnataka a pride of place in the global market. During the period 1996-97 to 2000-2001 the achievements in the industrial sector were as under:

According to the Ministry of Micro, Small and Medium Enterprises, recent ceilings on investment for enterprises to be classified as micro, small and medium enterprises are as follows:

* Investment limit in Plant & Machinery ** Investment limit in equipments *** Rs 50 = 1 USD

Strategy and Policy Framework set up Technology Up gradation (a) Interest subsidy to SMEs who avail loan from State Financial Corp.for technology upgradation and modernisation for which separate orders have been issued (b) This Technology Business Incubator will aim build on the strengths of small decentralised Technology Development Groups and are expected to spawn high value SMEs. Government assistance will be in the form of providing financial assistance for creation of basic infrastructure facilities subject to a ceiling of Rs. 50 lakhs per incubator. (c) To establish, over the next 5 years, ten more Science & Technology Entrepreneurs Parks [STEPs] in potential districts of the State. Government assistance will be in the form of capital grants for creating basic infrastructure facilities to the extent of 25% of the cost of each STEP subject to a ceiling of Rs. 25lakhs. (d) To assist and encourage the private sector to establish material and product testing as well as quality assurance laboratories in different districts of the State. These laboratories will focus on ensuring compliance with Product & Process Methods [PPM] and Sanitary & Phyto Sanitary [SPS] measures of the WTO. Government assistance for establishing such laboratories and testing centres would be in the form of capital grants of 10% of the capital cost subject to a ceiling of Rs.10 lakhs per Centre;and (e) Government will encourage the SMEs to obtain ISO 9000, ISO 14000 and similar international certification with a view to promote total quality management and best practices in SMEs. Government Assistance will be in the form of; meeting 50% of the cost of obtaining such certification, subject to a ceiling of Rs. 75, 000 per industry. Human Resource Development Developing a large skill/knowledge based workforce is fundamental to a selfsustaining industrial sector. Recognising this imperative, the Govt. will, with the active participation of Industry, revitalise the network of Artisan Training Institutes, the District Training Institutes and Polytechnics to upgrade the quality and skill of manpower employed by SMEs. This effort will be driven by market needs dictated by private industry. The effort to retrain the existing Industrial workforce, upgrade training systems/methods, will receive impetus from industry. It is envisaged that the focus of this programme will be to allow industry to manage the training institutions such that skill upgradation is market driven on the supply side of the formal labour market. In order to encourage micro enterprises in rural and backward areas the Government of Karnataka will continue its programme of establishing Rural Development and Self-Employment Training Institutes (RUDSETI's) in all Districts of the State. Government has successfully established nine RUDSETI's in collaboration with financial institutions and banks. Over the next five years, the Government of Karnataka will establish one RUDSETI in each District of the State. The Management of these institutions will be largely through private initiative to meet the needs of local industry. Marketing Assistance for the SSI Sector It is therefore proposed to amend the Karnataka [Transparency in Public Procurement] Act 2000 to provide purchase-price preference to SSI units of the State, which manufacture items reserved for SSI sector by Government of India from time to time, in the following manner:

a) 75% of the items reserved by the SSI Sector shall be procured from the units located within the State, through an open tender system; b) SSI units of the state shall be offered a price preference of 15% over the lowest price quoted; c) This benefit will be available for a period of 5 years from 1st April 2001. The role of KSIMC will also be reoriented to help the SSI Sector to : i) Improve quality of the products; ii)Improve the production-manufacturing processes; iii)Reduce prices; and iv)Augment exports. Streamlining Single Window Mechanism In order to ensure that the Single Window mechanism for approval/monitoring of projects is made more effective, the following modifications in the existing scheme shall be incorporated: 1. There will be only one High Level committee chaired by the Hon'ble Minister for Large & Medium Industries to consider and approve all investment proposals in excess of Rs.50 Crores in all sectors including Industry, Tourism, IT, BT, Agro Food Processing & Infrastructure. The composition of the Committee will be suitably modified to include the concerned ministers and officers; 2. The State level Single Window Agency under the Chairmanship of Principal Secretary to Govt., Commerce & Industries Dept., will henceforth consider and approve all projects of investments upto Rs. 50 Crores in each case including Industry, Tourism, IT, BT, Agro Food Processing & Infrastructure. The composition of the Committee will also be modified suitably to include officers of the concerned departments and agencies;

3. The District level Single Window Agency headed by the Deputy Commissioner will henceforth examine all proposals in all sectors including Industry, Tourism, IT, BT, Agro Food Processing & Infrastructure with investment of up to Rs. 3.0 Crores. Separate orders detailing the powers, authorities and functioning of the above committees will be issued. Capital productivity has fluctuated over the years because it is simultaneously influenced by a variety of factors. This study aims at assessing the performance of these units in terms of investment, production and employment. While assessing their performance the average productivity of labour and capital of the SSI units have been calculated according to their location, category, organizational structure and size..

2. Review of literature
A number of studies on efficiency of SSIs in India were undertaken. Among the interesting ones were Dhar and Lydall3 (1961); Hajra4 (1965); Sandesara5,6 (1966 and 1969); Mehta7 (1969); Bhavani8,9 (1980 and 1991); Goldar10,11 (1985 and 1988); Little, Mazumdar and Page12 (1987) and Ramaswamy13 (1990). Most of the earlier studies used the partial productivity ratios for a measure of the relative efficiency of SSIs. Doing Business 2010: Reforming Through Difficult Times presents quantitative indicators on business regulations and the protection of property rights that can be compared across 183 economies. According to the same report India is ranked 133 out of 183 economies. Singapore is the top ranked economy in the Ease of Doing Business. It requires 13 procedures, takes 30 days, and costs 66.06 % GNI per capita to start a business in India. India is ranked 169 overall for Starting a Business. It requires 37 procedures, takes 195 days, and costs 2,394.86 % GNI per capita to build a warehouse in India. India is ranked 175 overall for Dealing with Construction Permits. India is ranked 104 overall for Employing Workers. It requires 5 procedures, takes 44 days, and costs 7.43 % of property value to register the property in India. India is ranked 93 overall for Registering Property. India is ranked 30 overall for Getting Credit. India is ranked 41 overall for Protecting Investors. India is ranked 169 overall for Paying Taxes. India is ranked 94 overall for Trading Across Borders. India is ranked 182 overall for Enforcing Contracts. India is ranked 138 overall for Closing a Business. In India procedures under the 2002 Securitization Act have become more effective, easing the process and reducing the time required to close a business.

Dhar and Lydall, Hajra, Sandesara (1966 and 1969) and Mehta use CMI/ASI data for their analysis. The first four studies report a positive relationship between size and output-capital ratio. This is attributed to economies of scale and better management in the relatively bigger units. Mehtas conclusion is contrary to those of others. However, he uses a different criterion for size classification of the firms : he classifies the firms into different size classes according to the value of fixed assets. Earlier studies, on the other hand, use employment as the criterion for size classification. Also, Dhar Lydall-Sandesar a use total productive capital (fixed plus working capital) as a measure of capital input while Mehta uses fixed capital. However it is difficult to fully understand the reasons for contradictory conclusions arrived at by these studies. It is possible that since the ratio of working capital to fixed capital is high in small scale units, efficiency comparisons based on fixed capital favor small scale units. Hiranya K Nath (Southern Methodist University) Relative Efficiency of Modern Small Scale Industries in India: An Inter-State Comparison.

3. Research Methodology
The basic source of data for the present study is the Report on the All India Census of Small Scale Industrial Units. State level data are obtained from the corresponding state-wise volumes of the report. The data will be reported for the two-digit level disaggregation of the SSIs. Data on gross output, investment in fixed assets, gross value added, net value added and employment are reported for top 100 industries - in order of their contribution to gross output - at four-digit level of disaggregation for Karnataka as a whole. It is being planned to consider 9-10 major industries in the states in this study. The choice of the level of disaggregation is dictated by the availability of data. Empirical Measures of Relative Efficiency Relative Labor Productivity Relative Capital Productivity Relative Efficiency

References
Hiranya K Nath (Southern Methodist University) Relative Efficiency of Modern Small Scale Industries in India: An Inter-State Comparison. Strenghening Indian SME Clusters: UNIDOs Experience Case Study by Fabio Russo, Project: US/GLO/95/144, July 1999, http://www.unido.org/fileadmin/import/userfiles/russof/vie3.pdf (Accessed on 12.02.2012) MEs and Industrial Clusters: Lessons for India from Italian Experience (2001) by Janina Gomes, Economic and Political Weekly, Vol. 36, No. 49 (Dec. 8-14, 2001), pp. 4532-4533. Small enterprises and their access to finance (Memo), April, 2008 http://unidosmeindia.org/document/Small%20enterprises%20and%20Their%20Access%20to%2 0Finance%20%28Bruno%20Summary%29.pdf. Report on Effect of Economic Slowdown on Employment in India (October-December, 2008), Ministry of Labour and Employment, Government of India, January, 2009, http://www.labourbureau.nic.in/Report_on_EOFEMP_Jan09.pdf Doing Business 2010: Reforming through Difficult Times, The World Bank http://www.doingbusiness.org/Documents/CountryProfiles/IND.pdf Final Results Third All India Census of Small Scale Industries 2001-2002, Ministry of Micro, Small and Medium Enterprises http://www.smallindustryindia.com/publications/books/fcensus.htm