Question

Ravi did not expect that he would have to face a crisis in such a short period of his life as industrialist. Ravi took a loan from the bank to start his own company producing capacitors in 1992 in Hosur, an industrial town in Tamil Nadu. Capacitors are used in many electronic home appliances including tube lights, television etc. Within three years, he was able to expand production and had 20 workers working under him. His struggle to run his company started when the government removed restrictions on imports of capacitors as per its agreement at WTO in 2001. His main clients, the television companies, used to buy different components including capacitors in bulk for the manufacture of television sets. However, competition from the MNC brands forced the Indian television companies to move into assembling activities for MNCs. Even when some of them bought capacitors, they would prefer to import as the price of the imported item was half the price charged by people like Ravi.Ravi now produces less than half the capacitors that he produced in the year 2000 and has only seven workers working for him. Many of Ravi’s friends in the same business in Hyderabad and Chennai have closed their units.

Should producers such as Ravi stop production because their cost of production is higher compared to producers in other countries? What do you think?

Answer 1

No, producers such as Ravi should not stop production. Simply closing firms because they cannot compete with lower-cost international products is not a long-term strategy for a developing economy like India.

Here is why Ravi should continue production, along with the steps needed to help him survive:

1. The Threat of Mass Unemployment: Small-scale industries in India employ the second-highest number of people after agriculture. If producers like Ravi close their doors, millions of people would lose their jobs, resulting in widespread poverty, anguish, and a significant strain on the country’s economy.
2. Loss of Domestic Self-Reliance: If all local small producers stop producing output, India would be completely reliant on other countries for basic necessities. This makes the country subject to global price increases, supply chain disruptions, and economic exploitation by foreign monopolies.
3. The Competition is Often Unfair: Foreign producers can sometimes sell goods at a lower cost not because they are naturally more efficient, but because their governments provide enormous financial assistance. Forcing Ravi to compete against subsidised international behemoths without an equal playing field is fundamentally unfair.