Small Enterprises and the Crisis in Indian Development

There was a socio-political as well as economic imperative for the conscious encouragement of small enterprises in India. The high degree of concentration of capital in the Indian economy at the time of Independence led to a serious situation as far as the stability of the existing social order was concerned. Added to this was a situation where the country had achieved independence under the pressure of a mass national movement. Although never seriously challenging the legitimacy of institutions of private property, this had generated and disseminated democratic ideas, viewing unfavourably the existence of extreme concentrations of income and wealth. The economic imperative facing the planners arose from the high degree of self-employment in the economy. According to the 1951 population census, over 58 per cent of the work force engaged in industry "neither employed any one nor did they work for anyone". If the mass of productive facilities already existing at the time of independence were to expand and grow, it was critical that the market for the goods which they produced should also grow. To generate a fast growing market for capital goods and intermediate goods, it was necessary for the planners to encourage a process of capital accumulation, leading to differentiation among the huge mass of self-employed persons. Thus, both the socio- political imperative of the development of a small industrial capitalist stratum, and the economic imperative of the encouragement of small industrial enterprises pointed to the need for a set of official policy measures and institutions which would aid these processes. What is of interest in the Indian case, however, is that these requirements were skilfully matched to the popular support for small industrialists and small enterprises which had been generated by democratic currents within the national movement in the pre-Independence period.