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  • 1.1 Introduction

    Kerala, a land of remarkable and unequalled beauty, evergreen forests, palmy backwaters and strategic location on the trans-national trade corridor with excellent

    communication network, high density of science and technology personnel, highly literate

    work force, a good network of banks, well-connected road and rail network and rich

    natural resources, is a favourable ground for the industrial development.

    The small scale industrial sector is one of the most dynamic and vibrant sectors

    of the Indian economy in terms of employment, production and export. In micro, small

    and medium eterprises sector, it is estimated that about 59 million persons are working

    in over 26 million units throughout the country. Out of the total units, 95.05 percent are

    micro, 4.74 percent are small and 0.21 percent are medium enterprises. There are over

    6000 products ranging from traditional to high-tech items, which are being manufactured

    by the MSMEs in India. It contributes 40 percent of the direct export, 45 percent of the

    total industrial production with 8 percent of the GDP.

    The major traditional industries in Kerala are coir, handloom, handicraft, cashew,

    khadi, sericulture, beedi, bamboo etc., and the non-traditional industries are rubber based

    industries, information technology, food processing, ready made garments, tourism,

    ayurvedic medicines, marine products, engineering goods etc. The cottage industries

    are tiny or micro enterprises which come under the SSI or MSME sector. The cottage



  • Chapter - 1. Introduction2

    and small scale industries have a significant role in the national economy, offering as

    the scope for individual, co-operative enterprises and a means for the rehabilitation of

    displaced persons for the better utilisation of local resources and thereby achieving self-


    The Indian economy has undergone substantial changes since the introduction

    of economic reforms in 1991. These reforms were a comprehensive effort consisting of

    three main components viz., Liberalisation, Privatisation and Globalisation. They include

    various measures like de-regulating the markets and encouraging private participation,

    trade liberalisation, dismantling the restrictions on domestic and foreign investments,

    reforming the financial sector and the tax system. All such policy initiatives radically

    changed the economic setup of the country and integrated it with the rest of the world

    []. Those policies and

    procedures compatible with the globalisation and liberalisation may have affected the

    cottage industries in Kerala.

    The SSI sector is now more exposed to severe competition both from

    large scale sector and multi national companies due to the globalisation policies.

    The competitiveness in Indian industries is so severe with the abolition of industrial

    licensing and restrictions on MRTP companies, liberalisation of foreign investment,

    import of foreign technology, removal of quantitative restrictions on industrial goods,

    reduction of import rates etc. [Soundarapandian, 2006, P.184].

    The economic policies of liberalisation and privatisation have created a

    situation where Indian industry in general and small scale sector in particular are

    seriously threatened. The removal of quantitative restrictions on import and

    dereservation of small scale industries are affecting small industries badly [Economic

    Review, 2000, P.101].

    There are changes in the cottage industries in Kerala due to the economic

    reforms of liberalisation and globalisation. The changes and impact may be favourable

    or unfavourable, siginificant or insignificant. The study discloses the impact of

    globalisation and liberalisation policies in coir, handloom, handicraft and other

    manufacturing industries in the cottage industrial sector in Kerala and also changes in

    the functional areas of cottage industries in Kerala.

  • Chapter - 1. Introduction 3

    1.2 Statement of the Problem

    According to Viswanathan Tekumalla, “cottage industries are industries where

    artisans not exceeding nine per industrial unit, find employment in urban or rural areas

    either as independent workers or apprentices or assistants in or at their own or their

    employer’s home or as wage-earners in small karkhanas and work with capital, limited

    in practice but not in theory, adopting at times a simple and harmless division of labour

    and employing such hand or power-driven machinery as does not interfere with the

    utility and art value of the products, whose market is by no means merely local” [Chitra,

    1948, P.38].

    The cottage industry is one which is carried on in a place which is not a

    factory for the purpose of Factories Act of 1948, i.e. an industry which is carried on

    wholly or primarily with the help of the members of the family as whole or part time

    occupation. As per the Factories Act 1948, SSIs are those organised units which

    do not ordinarily employ more than 100 persons without power or 50 persons with

    power and have working capital less than rupees five lakh [Rao, 1979, P.20].

    The Government’s policy on cottage and small scale industries was concretised

    in the Industrial Policy Resolution of April 1948. The Industrial Policy Resolution laid

    emphasis on cottage industries.

    From the approach outlined in the Industrial Policy Resolution, an All

    India Cottage Industries Board was set up in 1948. Later it was bifurcated into six

    boards by the end of the first five year plan namely the All India Handloom Board,

    All India Handicrafts Board, Central Silk Board, Coir Board, All India Khadi and

    Village Industries Board and Small Scale Industries Board. While the first five

    were to be concerned with traditional [village] industries, the Small Scale Industries

    Board was to be concerned with modern small scale industry. Government policy

    on industry was further elaborated in the Industries Development and Regulation

    Act of 1951. 1

    1 The Act laid down that all undertakings in industries listed Schedule I annexed to the Act, with a size

    larger than a specified minimum would need to be registered with an agency to be notified by the

    Government. More importantly, the setting up of new units of a size larger than the specified minimum

    in the ‘schedule industries,’ or substantial expansion [above 25 percent of existing capacity] of the

    existing units in the scheduled industries, would require the prior approval of the Government of India

    in the form of industrial licenses [Suri, K.B., Small Scale Enterprises in Industrial Development - The

    Indian Experience, New Delhi:Sage Publications India Pvt. Ltd.,1988, p.302.].

  • Chapter - 1. Introduction4

    Those industries using locally available raw material, small equipment and tools,

    less power, number of employees less than ten, production is done in their own houses

    or work shed adjacent to their own houses and which is not under the purview of Indian

    Factories Act 1948 can be considered as cottage industries.

    The expansion of cottage and small scale industries depends upon a number of

    factors like the provision of raw materials, cheap power, technical advice, organised

    marketing of their products, safeguards against intensive competition from large firms,

    as well as on the education of the worker in the use of the best available technique.

    The traditional industries in Kerala include coir, handloom, handicraft, khadi,

    bamboo etc. The coir industry is one of the major traditional industries in Kerala, consisting

    of three major sub-sectors, viz. fibre extraction, spinning and weaving. The industry

    employs 3.75 lakh workers and 76 percent of them are women [Economic Review,


    The handloom industry is largely rural-based and is an important provider of

    rural non-farm employment. In fact, handloom is the largest employment provider after

    agriculture in India [Niranjana, 2007]. Among the total export of handloom from Kerala,

    roll fabrics is 5 percent and the remaining is made-ups [Moray, 2007]. Handloom industry

    in Kerala gives direct employment to 1.5 lakh people. About 15 handloom exporters in

    Kannur together clock over Rs.300 crore turnover. By 2010, the target is to perk this up

    to Rs.1000 crore, sending handloom from Kerala to about 50 countries. But the local

    sale is only Rs.50 crore per year [Meher, 2007].

    Handicraft industry is a major area for employment generation in Kerala by

    upholding our tradition and culture. Coconut shell carving, straw picture making, cane

    work, bamboo and reed weaving, ivory carving, bell metal casting, screw-pine, mat

    weaving are the major handicraft items produced in Kerala. The Kerala State Handicrafts

    Apex Co-operative Society, Handicrafts Development Corporation, Kerala State Bamboo

    Corporation, Kerala Artisans Development Corporation are the institutions to promote

    handicraft industry in Kerala. There are a number of institutions to promote other industries

  • Chapter - 1. Introduction 5