Publication - Working Paper
Punjab Small Industries Corporation rural enterprise study
- Small scale industry in the southern Punjab could be a driver of economic growth in the region. However, policy aimed at removing growth constraints on small and cottage industries, especially those in rural areas, has been low priority.
- This study identified sectors among small and cottage industries with high growth potential, as policy and reform should focus on these.
- The study found both sector specific and horizontal constraints.
- Key horizontal constraints include a severe shortage of energy, limited or no access to formal credit, governance and corruption issues, taxation, and access to markets and clients.
Small scale industry has the capacity to absorb workers, generate agglomeration economies, efficiently produce a variety of goods for domestic markets, and successfully carve a niche in selected export markets. Small scale manufacturing has two major advantages: its low intensity of capital investment; and its ability to absorb family and part time workers.
We studied industries with high potential for exporting beyond the district, and identified the growth constraints they face. Most economic activity in southern Punjab is agricultural. We therefore considered sectors related to agricultural activity.
We found that access to and the availability and cost of electricity is a major bottleneck hampering the growth and productivity of small industries. Southern Punjab gets relatively more load shedding and power outages than central and northern Punjab, and small firms located in rural areas are more severely affected by the outages. The Punjab Small Industries Corporation (PSIC) should advocate at the provincial level to improve load management in the Punjab. The frequency and duration of outages should be more balanced across the province. This could also be done by declaring clusters as industrial zones.
A second key constraint we identified is access to and availability of formal credit. PSIC could work with the banks and cluster value chains to facilitate the provision of credible information and adequate collateral protection for banks. To address the issue of insufficient collateral offered by small and cottage industry, PSIC should encourage the government and State Bank to allow the use of movable assets as collateral.
PSIC may consider setting up a facilitation centre in its regional office, where small and cottage businesses can report issues that constrain their business and operations. PSIC could then take up the matter with relevant provincial departments on behalf of the businesses.
Moreover, we recommend that PSIC set up information centers in rural areas, where local businesses would be able to access information about markets, opportunities, and business expansion plans. A small and cottage version of a facility such as the Small and Medium Enterprises Development Authority is required. Finally, PSIC should advocate for the Punjab Skills Development Fund to provide special skills programmes tailored specifically for small and cottage industry.