New Delhi: The government on Monday did away with one of the last remaining vestiges of the licence raj and scrapped the list of the last 20 items reserved for so-called micro, small and medium enterprises (MSMEs), a move that will allow large companies to make these products.

The products include pickles and chutneys, bread, mustard oil, groundnut oil, wooden furniture and fixtures, exercise books and registers, wax candles, laundry soap, safety matches, fire works, incense sticks, glass bangles, steel almirahs, rolling shutters, steel chairs, steel tables, steel furniture, padlocks, stainless steel utensils and aluminium domestic utensils.

Some big companies have been making these products for years—bypassing the regulation by signing outsourcing contracts with small enterprises in some cases, or simply flouting it in others.

The policy of reservation of products for exclusive manufacture in small scale industries (now MSMEs) was launched in 1967 with the objective of achieving socio-economic development through the development and promotion of small enterprises across India. This was expected to address regional industrial imbalances, create jobs, and increase productivity. However, with the gradual opening up of the economy, which allowed free import of many of these items, such reservations have not really worked.

Over the years, the list of items reserved for manufacture by MSMEs had been reduced from over 800 to 20.

“The Advisory Committee in its meeting, held on 20.10.2014, noted that with the import liberalization, all remaining items are allowed for imports. Thus, there is no prima facie justification for continuation of reservation of manufacturing in the MSE Sector since such reservation may inhibit the possibilities based on technologies, economy of scale, etc. vis-à-vis the imported items," a statement from the ministry of commerce and industry said on Monday.

The statement said the decision was taken to “encourage greater investment, including the existing MSME units, to incorporate better technologies, standard and branch building to enhance competition in Indian and global markets for these products".

V.K. Agarwal, president of the Federation of Indian Micro and Small and Medium Enterprises,said the reservation had become irrelevant. “It was just a gimmick. Doing away with it will have no impact on MSMEs. What we need is easy access to finance, more rational tax rates and ease of doing business, not a bunch of items reserved for us," he added.

According to a survey by National Sample Survey Office in 2013, there are 57.7 million small business units, accounting for more than 80% of total industrial enterprises and employing an estimated 60 million people. MSMEs contribute around 45% to manufacturing output and about 40% to exports, both directly and indirectly. In addition, over 50% of MSMEs are rural enterprises and widely distributed across low-income states, making them an important vehicle for promoting economic growth.

The government has recently launched Mudra (micro units development refinance agency) Bank, with a refinance corpus of ₹ 20,000 crore and a credit guarantee corpus of ₹ 3,000 crore, to address the credit needs of small entrepreneurs.

Mudra Bank is likely to evolve as a regulatory body for microfinance institutions (MFIs), though it is not yet clear if it will emerge as the sole regulator of the sector, replacing the Reserve Bank of India, which regulates microfinance firms that are registered as non-banking financial companies.

The role envisaged for Mudra Bank includes registration and rating of MFIs, laying down policy guidelines for financing micro-enterprises and putting in place financing practices to ensure there is no indebtedness, the finance ministry said in a statement.

Mudra Bank will refinance financial institutions for lending to micro businesses and entrepreneurs, covering loans from ₹ 50,000 to ₹ 10 lakh. The government is hoping the agency will help shopkeepers, fruit and vegetable vendors, truck operators and self-help groups to meet their funding requirements.

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