CHANGES IN RURAL INDUSTRIES IN SRI-LANKA AFTER THE OPEN ECONOMIC-POLICY

In 1977, the United National Party, which formed a new government, ado pted an open economic policy and dismantled most of the regulatory mea sures introduced by the previous government of the Sri Lanka Freedom P arty. Trade liberalisation was one of the elements of the new policy p ackage. Shortage of foreign raw materials and technology was one of th e major constraints encountered by rural Industrialists prior to trade liberalisation. Increased availability of foreign raw material and te chnology due to trade liberalisation had a positive effect on rural in dustries but the inflow of foreign finished products had a detrimental effect on certain sectors. The sectors that experienced growth did no t face competition from foreign products. In such sectors the competit ion among domestic manufacturers increased. The evidence shows that th e competition from large-scale urban industries is exerting pressure o n certain rural industries. However, the damage caused by domestic com petition is not so acute as that of the foreign competition. The way t rade liberalization was implemented did not provide adequate time for the small-scale industrialists in rural areas to adjust themselves to face the competition from foreign products. A 'phased opening-up of th e economy' would have reduced some of the negative effects. This study shows how macro-economic policies affect even the micro-industrial en terprises in rural areas.