In this paper, we address ourselves to an evaluation of government policy designed for the modern segment of the small scale manufacturing sector. We argue that the policy has been and continues to be supply-driven and paternalistic leading to dependency. In addition, the individual unit-centered atomistic approach of policy is dominated by continuous protective and discretionary promotional measures with perverse incentive effects for the healthy growth of this segment. We underline the need to move away from continued protection and bureaucratic discretion-based promotion and argue for a radical shift in this policy towards a demand-driven, group-oriented and collective effort-based (rather than atomistic) approach. We argue for the abolition of indiscriminate reservation of production lines for exclusive production in the small scale sector and introducing and strictly enforcing the time bound character of promotional concessions. It would induce this segment to get out of the syndrome of remaining small and inefficient. The suggested shift in policy is necessary in order to flexibly adjust to fast changing circumstances so as to better serve the longstanding and as yet unattained objective of developing a vibrant and self-reliant modern small scale industry.