Page 110 - Understanding Economics for Class 10

Example-Small producers: Compete or perish

Globalisation has posed major challenges for a large number of small producers and workers.
Rising Competition
ravi, an industrialist who ventured into the capacitor production business in 1992 faced a crisis
Goyal Brothers Prakashan
in a short period of his life
 ravi took a loan from the bank to start his own company producing capacitors in Hosur,
an industrial town in Tamil Nadu.
 Capacitors are used in many electronic home appliances including tube lights, television
etc.
 He was able to expand production within three years, and had 20 workers working under him.
 However, his challenges began when the government lifted restrictions on capacitor imports
in accordance with its WTO agreement in 2001.
 The emergence of multinational brands and their competitive pricing compelled Indian
television companies, ravi's primary clients, to shift towards assembling activities and
import capacitors at significantly lower prices.
 Consequently, ravi's production dwindled, his workforce decreased to seven, and he
witnessed the closure of many similar businesses in Hyderabad and Chennai.
 This scenario has been replicated across various industries such as batteries, plastics, toys,
tyres, dairy products, and vegetable oil, where small-scale manufacturers have suffered
due to intense competition.
 These closures have resulted in significant job losses, impacting the substantial workforce
employed by small industries in India, second only to agriculture, amounting to
approximately 20 million workers.

LET’S WORK THESE OUT (Page No. 68)
1. What are the ways in which ravi’s small production unit was affected by rising competition?
Ans. ravi’s small production unit was affected by rising competition in following ways:
(i) ravi’s main client was television companies. They have started manufacturing Tvs
for MNCs. Now they don’t require capacitors produced by ravi.
(ii) Due to decreased demand, ravi has reduced his production. His capacitors are costlier
than the imported ones. Television companies prefer to import rather than buying from
domestic market.
(iii) With such a small amount of production, it is getting difficulty for ravi to even cover
the cost. He is facing losses and may be forced to shut down just like his friends did.

2. Should producers such as ravi stop production because their cost of production is higher
compared to producers in other countries? What do you think?
Ans. If he can produce only at lower cost, by using improved technology and able to survive
competition, then only he should continue production otherwise he should not.

3. recent studies point out that small producers in India need three things to compete better
in the market (a) better roads, power, water, raw materials, marketing and information
network (b) improvements and modernisation of technology (c) timely availability of
credit at reasonable interest rates.

E-96 Economics Class X