Small Scale Industries

Small-scale industries, often referred to as Small and Medium Enterprises (SMEs), are businesses
characterized by their relatively modest size and operational scale. These enterprises typically operate
on a more localized or regional level, focusing on producing goods or providing services on a smaller
scale compared to large corporations. Small-scale industries play a vital role in fostering economic
development, as they contribute significantly to employment generation, economic diversification,
and fostering entrepreneurship. These businesses are often characterized by their flexibility,
adaptability, and close community ties. Common examples of small-scale industries include family-
owned businesses, local manufacturing units, and service providers catering to specific community
needs. Governments often support and promote the growth of small-scale industries as they
contribute to overall economic resilience and inclusivity.

Characteristics of Small-Scale Industries

1. Limited Capital Investment: Small-scale industries typically start with limited capital investment
compared to larger businesses. They often rely on personal savings, small loans, or contributions from
family and friends to initiate their operations.

2. Localized Operations: These industries primarily serve local or regional markets, focusing on the
needs and demands of the immediate community. Their production and distribution are often on a
smaller scale, catering to local consumers.

3. Small Workforce: As the name suggests, small-scale industries employ a limited number of workers.
They may have a handful of employees, and in some cases, the business may be run solely by the
entrepreneur and their family members.

4. Flexibility and Adaptability: Small-scale industries tend to be more flexible and agile in responding
to market changes and customer preferences. They can quickly adjust their production processes or
product offerings based on demand fluctuations.

5. Simple Organisational Structure: These enterprises usually have a simple organisational structure
with fewer levels of management and bureaucracy. Decision-making processes are quicker and more
direct.

6. Niche Products or Services: Small-scale industries often focus on producing niche products or
providing specialized services. They may target specific customer segments or cater to unique needs
that larger firms may not address.

7. Entrepreneurial Spirit: Entrepreneurs play a central role in small-scale industries. The success of
these enterprises depends significantly on the vision, innovation, and drive of the entrepreneur behind
the business.

8. Local Sourcing of Inputs: Small-scale industries often rely on locally available raw materials and
inputs for their production. This helps in reducing transportation costs and strengthens local supply
chains.

9. Technology Adoption: While small-scale industries may not have access to cutting-edge technology,
they often adopt cost-effective and appropriate technologies to enhance efficiency and productivity.

Role and Importance of Small-Scale Industries

1. Employment Generation: Small-scale Industries are mostly labour-intensive. They provide

employment opportunities to a large number of people, especially in rural areas where job
opportunities may be limited. This not only helps in reducing unemployment and poverty rates but
also leads to the growth of the nation.

2. Income Generation: Small-scale Industries contribute to income generation both at the individual
and national levels. The Small-scale Industries provide opportunities in the form of both self-
employment and entrepreneurship thereby, helping individuals earn and improve their standard of
living. Additionally, these industries contribute to the country’s GDP increasing the national income.

3. Innovation and Diversification: Small businesses generally engage in specialised goods and services,
which promotes creativity and variety. They help the market expand and become more competitive by
introducing new ideas and technology. These industries act as space for new and innovative ideas and
also provide assistance to larger industries.

4. Export Promotion: Small businesses play an important role in promoting exports. They produce a
wide range of products and services that may be imported into other countries. This helps in
generating foreign cash, growing business relationships, and improving the country’s competitiveness
abroad.

5. Support to Large Industries: Small businesses act as supporting units for larger industries by
supplying them with intermediate goods and services. They improve the efficiency and productivity of
big industries and promote the growth of such industries.

6. Rural Development: Small-scale Industries have a big impact on rural development since they are
easy to establish in rural areas. Besides providing people with employment opportunities, Small-scale
Industries also help improve the standard of living of people in rural regions and boost their overall
income.

7. Balanced Regional Development: Small-scale Industries have the potential to spread economic
development beyond urban areas. They help in reducing regional differences by creating opportunities
in rural and remote areas; thereby, promoting balanced economic development.

8. Maintenance of Traditional Skills and Crafts: Small industries often focus on preserving traditional
skills and crafts that are unique to a particular region or community. These industries support the
development and promotion of cultural heritage and traditions.

9. Ancillary Industries: Small-scale industries serve as ancillary units to larger industries. They supply
raw materials, components, and intermediate products, thereby supporting the growth of larger
manufacturing enterprises.

10. Employment Diversification: Small-scale industries diversify the sources of employment in the
Indian economy. They offer job opportunities in a wide range of sectors, from manufacturing and
textiles to handicrafts and services.

Advantages of Small Scale Industries

• Close Supervision: Small producers can supervise every aspect of their business; nobody can
vandalize the machinery or waste materials; no fraud or idleness is allowed; they will use maximum
economic efficiency to reach the highest profits; i.e., the supervisor inspects every action.
• Nature of Demand: Small producers have an advantage when the demand is small or constantly
changing, thereby having a sphere of their own where they can compete with large-scale
producers.
• Employment Generation: Since the country’s unemployment rate is quite high, cottage and small-
scale industries are a great way of creating more employment opportunities since small size
 production is more labour-intensive. Small size production involves more manual labour than
machinery, thus, many unemployed individuals are employed by small-scale industries.
• Minimum Investment Requirement: Small-scale industries are of great advantage for the
development of industries where capital is scarce. They can be started with small amounts of
capital.
• Worker-Employer Direct Relationship: As a result of the lower number of workers used in small-
scale production, there is a close relationship between the employer and his workers. Because of
the strong relationship between the employer and workers, the employer can take good care of
his employees; the workers, in turn, consider their work as their own, and the work is done
smoothly without any disputes between them.
• Customers and the Producer’s direct relationship: In general, small-scale producers concentrate
on catering to the local market, so they remain in touch with the clients. Since small producers
know their customers personally, they can provide goods tailored to meet the tastes and
preferences of individual consumers.
• Freedom of Work: Small scale industries allow the employees to work in a free environment. They
are competent enough and work independently in their own comfort zone.

Disadvantages of Small Scale Industries

• Demand and Supply Problems: When high-demand products are available, small-scale industries
may find it difficult to increase production in sufficient amounts to meet the demand.
• Geographically limited: Small scale industries are often confined to a small town or even to one
building. These geographical restrictions prevent them from becoming household names around
the world.
• Less financial power: Smaller companies normally deal with less money (both in terms of income
and expenditures) than larger companies and therefore have less financial power.
• Access to Machinery: A small-scale industry usually lacks the available space or the funds to use
large-scale machinery. However, it may be able to obtain expensive, specialized equipment.

Cottage Industries

A cottage industry, also known as a home industry, refers to a form of business operation where
products or services are manufactured or delivered from home, rather than from a commercial or
factory setting. These industries are typically small-scale and often involve family members or a small
group of individuals from the same community. Cottage industries are characterized by their localized
nature; they primarily cater to the needs of the local market, although some may reach a wider market,
especially with the aid of technology and e-commerce platforms. They often specialize in the
production of traditional crafts and handmade goods, although they can also involve other types of
products or services.

One of the key features of cottage industries is their labor-intensive nature. They typically require a
relatively small amount of capital investment, with the main input being manual labor. In this way,
cottage industries often provide employment opportunities in areas where opportunities may be
scarce, and can contribute to the sustenance of local economies. Another distinct aspect of cottage
industries is their embeddedness within community and family structures. Cottage industry operators
often utilize their homes as their primary place of business, integrating their work and family life.
Cottage industries contrast significantly with large-scale industrial production. This often results in
products that are unique and have a personal touch, differentiating them in the market.

Types of Cottage Industries

• Handicrafts and Artistic Products: This is the most traditional form of cottage industry and includes
a wide range of products, such as textiles (weaving, knitting), pottery, jewelry, leather goods,
woodcrafts, and more. These are typically handmade items that require a certain level of skill or
craftsmanship.
• Food Production and Processing: This category includes home-based baking or cooking
businesses, jam and preserves making, cheese production, wine making, or even small-scale
farming. These products are often organic or artisanal, appealing to niche markets that value
quality and authenticity.
• Personal Services: Cottage industries can also include personal services that can be provided from
home. These may include childcare services, elderly care, pet care, beauty services, tutoring, and
more.
• Online Businesses: With the advent of the internet, a new type of cottage industry has emerged.
This includes home-based online businesses such as freelance writing, graphic design, digital
marketing services, online retail (selling homemade or curated goods), blogging, and more.
• Repair and Maintenance Services: Some individuals operate small repair and maintenance
businesses from their homes or garages. This can include anything from bicycle repair to computer
troubleshooting.
• Professional Consulting: Individuals with a specific set of skills or expertise may run a consulting
business from home. This could range from business consulting to personal coaching or counseling
services.

Role of Cottage Industries

• Employment Generation: Cottage industries are a source of employment for many individuals,
particularly in rural and underserved communities. They often provide opportunities for those who
may face difficulties in accessing formal employment, including women, the elderly, and
individuals with disabilities.
• Income Generation and Poverty Reduction: By providing income-generating opportunities,
cottage industries can play a role in poverty reduction. They enable individuals and families to earn
a livelihood, supporting their economic stability and contributing to local economic development.
• Preservation of Traditional Crafts and Skills: Cottage industries often involve traditional crafts and
skills, contributing to their preservation. These crafts may have cultural and heritage value and can
be a source of local pride. They can also attract tourism, further contributing to the local economy.
• Promotion of Entrepreneurship: Cottage industries foster entrepreneurship. They allow
individuals to start their own businesses with relatively low capital investment, providing a
platform for innovation and creativity.
• Local Development: By focusing on local resources and markets, cottage industries promote
localized economic development. They can stimulate local economic activity and reduce
dependence on external resources.
• Supply Chain Diversity: Cottage industries diversify the supply chain by offering unique products
that are distinct from mass-produced goods. They cater to consumers who value handmade,
artisanal, or locally produced goods.

Advantages

• Low Capital Requirement: Starting a cottage industry often requires minimal initial capital.
Entrepreneurs can typically utilize their existing skills, home as a workspace, and even household
equipment to start their venture.
• Flexible Working Conditions: A cottage industry provides flexibility in terms of working hours and
conditions. This can be particularly beneficial for those with other responsibilities, such as
caregiving or farming.
• Preservation of Traditions and Skills: Cottage industries often revolve around traditional crafts and
artisanal skills, thus preserving them for future generations. This can also foster a sense of pride
and cultural identity within communities.
• Local Economic Growth: As cottage industries typically use local resources and serve local markets,
they help stimulate local economies and reduce reliance on imports.

Disadvantages:

• Limited Scale and Growth: Due to their small scale and the manual nature of production, cottage
industries may find it challenging to significantly scale up production and grow their business.
• Market Access and Competition: Cottage industries often face difficulties in accessing broader
markets and can struggle to compete with larger industries that benefit from economies of scale.
• Regulation and Formalization: Cottage industries may face challenges in terms of regulatory
compliance, particularly if they want to transition into a more formal business. This could include
issues relating to tax, licensing, labor laws, and more.
• Inconsistent Income: As cottage industries often rely on the skills and labor of a few individuals,
any personal or health issues could significantly impact productivity and income.

Problem of industrial development in India

1. Poor Capital Formation:

Poor rate of capital formation is considered as one of the major constraint which has been responsible
for slow rate of industrial growth in India.

2. Political Factors:

During the pre-independence period, industrial policy followed by the British rulers was not at all
favourable for the interest of the country. Thus, India remained a primary producing country during
200 years of British rule which ultimately retarded the industrial development of the country in its
early period.

3. Lack of Infrastructural Facilities:

India is still backward in respect of its infrastructural facilities and it is an important impediment
towards the industrialization of the country. Thus in the absence of proper transportation (rail and
road) and communication facilities in many parts of the country, industrial development could not be
attained in those regions in-spite of having huge development potentialities in those areas.

4. Poor Performance of the Agricultural Sector:

Industrial development in India is very dependent on the performance of the agricultural sector. Thus,
the poor performance of the agricultural sector resulting from natural factors is also another important
factor responsible for industrial stagnation in the country.

Agriculture provides not only raw materials and foodstuffs hut also generates demand for the goods
produced by the industrial sector. Thus, this poor performance of the agriculture retards the
development of industries in India.
5. Gaps between Targets and Achievements:

In the entire period of planning excepting 1980s, industrial sector could not achieve its overall targets.
During the first Three Plans, against the target of 7, 10.5 and 10.7 per cent industrial growth rate, the
actual achievements were 6, 7.2, 9 per cent respectively. Since the Third Plan onwards, the gap
between the targets and achievements widened.

It is only during the Sixth and Seventh Plan, the industrial sector could achieve its targets. Again in first
part of 1990s the industrial sector again failed miserably to achieve its target. This trend is all along
against the smooth industrial development of the country.

6. Dearth of Skilled and Efficient Personnel:

The country has been facing the problem of dearth of technical and efficient personnel required for
the industrial development of the country. In the absence of properly trained and skilled personnel, it
has become very difficult to handle such highly sophisticated computerized machineries necessary for
industrial development of the country.

Moreover, inefficiency and insincerity of those personnel engaged in industrial sector has been
resulting in huge wastage of resources of the industrial sector. Moreover, social factors like immobility
of labour and capital and lack of proper initiative and enterprises on the part of people of India are
also highly responsible for this slow pace of industrialisation in the country.

7. Elite Oriented Consumption:

In recent years, a strong tendency to produce rich men’s goods has been established among the large
industrial houses. Accordingly, the production of “white goods” like refrigerators, washing machines,
air conditioners etc. expanded substantially along with the other luxury products.

But the production of commodities for mass consumption has recorded a slow growth rate. This clearly
reveals a ‘distortion of output structure’ of Indian industries, resulting in a recessionary tendency in
the market of these luxury products in recent years.

8. Concentration of Wealth:

The pattern of industrialisation in the country has been resulting in concentration of economic power
in the hands of few large industrial houses and thus flailed to achieve the objective of planning in
reducing concentration of wealth and economic power. As for example, Tatas with 38 companies
substantially increased their assets from Rs. 375 crore in 1963- 64 to Rs. 14,676 crore in 1991-92.

The assets of Birlas also increased from Rs. 283 crore in 1963- 64 to Rs. 6,775 crore in 1990-91. Similarly
other large business houses are also multiplying their assets at a very faster rate and are tightening
their stronghold on the economy.

9. Poor Performance of the Public Sector:

In-spite of attaining a substantial expansion during the planning period, the performance of public
sector enterprises remained all along very poor. A good number of such enterprises are incurring huge
losses regularly due to its faulty pricing policy and lack of proper management necessitating huge
budgetary provision every year. Thus, the public sector investment failed to generate required
surpluses necessary for further investment in industrial sector of the country.

10. Regional Imbalances:

Concentration of industrial development into some few states has raised another problem of
imbalances in industrial development of the country. Western region comprising Maharashtra and
Gujarat attained maximum industrial development whereas the plight, of the poor states are
continuously being neglected in the process of industrialisation of the country in-spite of having a huge
development potential of their own.

Although a huge investment in the public sector has been made in the backward states like Bihar,
Orissa and Madhya Pradesh, but the ‘trickling down effects’ of such investment were not also visible.
Various fiscal incentives, capital subsidies and other facilities introduced for industrial development of
backward area were mostly channelized to develop industries in backward areas of developed states
leading to a gross neglect of the demand of backward states.

11. Industrial Sickness:

Another peculiar problem faced by the industrial sector of the country is its growing sickness due to
bad and inefficient management. As per the RBI estimate, a total number of sick industrial units in
India were 1,71,316 as on 31st March, 2003 and these sick industrial units had involved an outstanding
bank credit to the extent of Rs. 34,815 crore.

The RBI estimate further disclosed that every seventh small scale unit in India was sick at the end of
December 1983. Thus, this growing sickness of industrial units has resulted in a huge problem in the
path of industrial development of the country.

12. Regime of State Controls:

Industrial inefficiencies resulting in perpetuation of regional state controls and regulatory mechanism
are standing in the path of industrialisation of the country. In recent years, the Government has
undertaken some serious measures to make necessary economic reforms in the industrial structure of
both the public as well as private sectors of the country.

Although these measures are quite challenging in nature but these are expected to do much headway
in removing various obstacles mentioned above and also in attaining industrial development of the
country further in the years to come.

Skill India make in India

The Make in India initiative, launched by the Government of India in September 2014, aims to position
India as a global hub for design and manufacturing. It focuses on encouraging both multinational and
domestic companies to manufacture their products within India, targeting 25 economic sectors for job
creation and skill enhancement.

Objectives of Make in India

1. Increase in Manufacturing Sector Growth: Aiming for a growth rate of 12-14% per annum in the
manufacturing sector.
2. Job Creation: Creating 100 million additional manufacturing jobs in the economy by 2022.
3. Enhancement of Skills: Skilling the workforce to meet manufacturing and service sectors'
demands.
4. Attract Capital: Attracting global investment to enhance the manufacturing sector.
5. Promote Exports: Expanding the sector's contribution to GDP and the role of exports in economic
growth.

Key Strategies
1. Ease of Doing Business: Simplifying processes for companies to set up and expand manufacturing
operations in India.

2. Infrastructure Development: Building industrial corridors and smart cities with advanced technology
and infrastructure.

3. Foreign Direct Investment (FDI): Liberalizing FDI policy in sectors like defense, railways, and space.

4. Intellectual Property Rights (IPR): Strengthening the IPR framework to foster innovation.

Skill Development initiatives

• National Skill Development Mission: Provides a cohesive framework for skill development efforts
nationwide.
• Skill India Mission: Launched in July 2015 with the goal to train over 400 million people in various
skills by 2022, including programs like the National Skill Development Corporation (NSDC) and
Pradhan Mantri Kaushal Vikas Yojana (PMKVY).

Impact and Challenges

1. Economic Growth: Positive impacts on economic growth and manufacturing performance, with
significant FDI attraction.
2. Employment: The initiative has created jobs, but meeting the promised scale remains a challenge.
3. Skill Gap: Addressing the skill gap is crucial for effectively meeting the demands of the
manufacturing and service sectors.