What was the main drawback of small-scale industry reservation policies?
Show answer & explanation
Correct answer: D
Explanation
Correct Answer:-
They restricted economies of scale and technological upgrading
Explanation:-
The main objective of small-scale industry reservation policies was to protect small enterprises from competition with large-scale industries. However, a major drawback was that these industries were restricted from increasing their scale of production beyond a certain limit. Due to this constraint, they could not benefit from economies of scale and faced difficulties in adopting modern technologies, which reduced their global competitiveness.
Key Points:-
These policies compelled industries to remain small rather than investing on a large scale to increase productivity.
In the absence of technological upgrading, many small industries became obsolete and lagged in meeting quality standards.
The reservation policies led to the misallocation of resources and reduced the ability to compete with large industries.
Important Questions and Answers:
Question: Under which law are small industries in India classified as 'Micro, Small and Medium Enterprises' (MSME)?
Answer: The MSME Development Act, 2006.
Question: What is the meaning of 'Economies of Scale'?
Answer: The reduction in cost per unit of production as the volume of production increases.