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Because of the inability of the agricultural sector, due to its physical limitations, in continuing as the major contributor to the economic development of Sri Lanka the need to promote the industrial sector has increased greatly in recent years. Small-scale industrial enterprises, in particular, deserve more encouragement since their labour intensive character is consistent with the relative abundance of labour and the scarcity of capital in the economy. However, statistics reveal that the growth performance of the small industry segment has not been satisfactory after the year 1977. The main reason for this seems to be the unfavourable effect of the 1977 policy reforms. It is necessary, therefore, that while protecting small enterprises from the harmful effects of the said policy reforms, steps be taken to promote small industry on the basis of a well planned longterm strategy as a complementary segment in the overall industrial sector, if Sri Lanka is to succeed in her industrialisation effort.

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