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A. N. Chandradithya (is the Administrative Officer of the Sri Lanka Chamber of Small Industry (SLCSI))

The Small and Medium Industrial Sector in Sri Lanka is the most important area within the manufacturing sector of the country's economy. Past records show that the contribution from the Industrial Sector to the Gross National Product has ranged from 10% - 35%. the share of the small and medium sector contributions to the industrial growth is estimated to about 62 per cent.

During the late 70s the industrial growth in the country was satisfactory and in last two decades with many obstacles growth accounted for about 16 per cent on average. These statistics show that industrial growth and the contributions towards the economy was highly dependent on the small and medium sector.

The development of small and medium scale industries constitute a major strategy in the socio-economic development of the country. These industries are generally more labour intensive, generating more employment. They could be located in less-developed areas of the country, making use of local resources as feedstock for industry. Their products could cater to both local and export market. Further they could produce intermediate inputs to larger industries through sub-contracts.

This facilitates linkage between small and large industries, and also have the privilege of running the factory throughout as well as utilising of modern techniques too thus developing their quality of standard. Further they indirectly act on population balance between the urban and rural areas.

One of the main problems contrasting the growth of the small sector is the difficulty to obtain credit facilities under existing lending policies of Commercial Banks and lending agents.

Entrepreneurs in small and medium sector are unable to furnish sufficient collateral to obtain loans. Besides the processing of such loan applications by these lending institutes are also slow. Hence some special requirement is needed to motivate lending institutions to provide loans to this sector on the concept of profit-oriented lending in contrast to security oriented lending.

These issues havebeen discussed time and again at various fora during both governments. Following requests proposals were made and accepted by them. Establishment of a credit guarantee scheme to reduce the risk of lending.

Issue of funds to Commercial Banks for lending exclusively to the small and medium sector.

To permit commercial banks to lend to small and medium sector covering only the administrative costs.

Considering the above issues the govt put into operation the SMI loan scheme. These were issued under the supervision of 5 government institutions and a private sector institute. This scheme was quite satisfactory and on the success of this another loan scheme SMI II was launched. At this stage banks too played positively and both projects were very satisfactory.

Then again SMI III also came into operation in the latter part of the 80s. This came with a broad purview with credit guarantee scheme by the Central Bank. Various sectors of industries in small and medium were able to obtain these loans.

During this period the impact of the open economy had spread. Imports from other countries merged into our markets in bulk and the local products were discarded, resulting poor market for local products. and industries All policy makers encouraged imports under the open economy saying it was good for competition. The small sector was not encouraged.

Duty on import of raw materials, income tax, GST were rising finally crushing the small industries A survey on sick industries was carried out recently.

This showed that 9.7 per cent has been closed down during 1999-2000 due to various reasons.

One major cause for sickness is the rigidity in the regulations that prevent an enterprise reduce its size and operation during distress. In this event of an enterprise failing totally the existing legal environment does not allow them flexibility or restructuring the enterprise and reuse of its capital.

Although Free Trade Agreements were signed with many countries it did not help as It works only one way. Whatever the items imported from those countries to Sri Lanka are imported duty free whereas when it came to exports user destinations levied stiff taxes. resulting an increase in cost price. These issues have to be properly studied and rectified.

Many countries there have an industrial policy to protect industries. Specially for small industries. Importation of products coming under this protection are prohibited. No large industrialist is allowed to produce the items coming under this protection list as they are products of small industrialists.

Thereby it protects the small sector from foreign countries and also from large local industries. Our country also should formulate a policy to protect small industries from competition by large industries and from imports.

Under this a list of items are exclusively preserved for the Small Industry. Over the years' these have increased to over 850. These industrial policies protect not only the small sector but also the large industrialists from direct foreign competition.

SMIs in most Asian countries are provided market support through Government Procurement Policies with exemption or concessions from production by Small Industrialists.

Recently container loads of shoes were imported to the country by some traders.

These sub-standard poor quality shoes were imported by units of weight. These had a bad impact on local shoe industry. The shoes brought in those containers flooded the market for about 6 months while affecting the market condition of local products. The government first decided to charge Rs. 100 per pair of shoes as import duty. Later the traders who imported these shoes managed to clear them gratis.

The funniest part is this. The next load of shoes imported by these traders came in containers with only Left shoes in one container and Right shoes in another thereby side stepping a legal glitch Some traders were importing used bicycles, sewing machines, refrigerators, washing machines etc. All these has to be stopped to protected the local industries. Easiest and most wanted is implementing an anti-dumping law. This will protect the industries as well as country's foreign exchange which were paid for sub-standard and used goods.

Our policy makers giving ear to the foreign lending institutions does not hear the voice of the local small industrialist. A protecting system must be made possible here in Sri Lanka by making the small production units who manufacture to meet the local demands and required standards.

An institution has to be established for funding only the small and medium industrialists as in India.

Their area of lending is limited only to small and medium sector. Hence the policy and the mission of this lending institute is always with the small sector.

All foreign grants to the small and medium sector and all the allocations from the Government's annual budget to be pumped in to this institute so that the monies allocated for small industrialists will never go into other sectors.

This is the voice of the small industrialists that the government should hear and take into consideration and quick implementation.

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