After dereservation, labour intensive industry can exploit economies of scale and scope and thus reduce unit cost of production to those of Chinese imports, it said. The survey observed that while special support policies for small and medium enterprises was found in most countries, the policy of SSI reservation was unique to India. "SSI reservation is a variant of investment control. The time has come to give up reliance on reservation as an instrument for supporting SSI," the survey said.

As many SSI reserved goods, like bicycles, agricultural implements and garments are used by the bottom half of the population, dereservation will also raise the real income of the poor and generate further demand for these goods, the survey added.

During 1999-2000, the SSI sector recorded production growth of 8.23 per cent, which was higher than the growth rate of industrial sector as a whole.

There were 3.06 lakh sick SSI units as on March 31 1999. These units were those which obtained loans from banks and an amount of Rs 4.313 crore was blocked by these units. Of these only 18,692 units, with outstanding bank credit of Rs 377 crore, were considered potentially viable by the banks.