All industrial units with a capital investment of not more than Rs. one crore are, at present, treated as small-scale units. For ancillary units i.e., those supplying components etc., to large-scale industries and the export-oriented units, the limit of capital investment is also Rs. one crore. Industrial units with an investment of up to Rs. 25 lakhs belong to the tiny sector. It may be noted that capital investment covers only investment in plant and machinery, land and factory buildings are excluded. As per this classification all industries with capital investment higher than specified for small-scale units are large-scale industries.
The small-scale industries contribute a lot to the progress of the Indian economy. They have also a great potential for the future development of the economy. Let us discuss their role in detail.
Large Scope for Employment: The small-scale industries provide large scope for employment on a massive scale. In 2001 the employment generated in this sector was 19.2 million. This is of great significance for a country like India which is a labour-surplus economy, and where labour-force is increasing at a very rapid rate. Moreover, the small-scale industries being labour-intensive they employ more labour per unit of capital for a given output compared to the large-scale industries. This is evident from the fact that the small-scale sector accounts for as much as 80% of the total employment in the industrial sector.
The small-scale industries are also specially suited for overcoming various types of unemployment in the rural and semi-urban areas. With little capital and other resources, mostly available locally, these industries can be set-up everywhere in the country, even at the very door-step of the workers. For this reason the small farmer and agricultural worker can combine their work in agriculture with that in these industries. Further, these industries provide part-time as well as full time work to rural artisans, women, and poor of the backward classes.
Large Production: The small-scale industries also contribute a sizeable amount to the industrial output of the country. Out of the total output of the manufacturing sector, as much as 40% comes from these industries. And out of the total supplies of industrial consumer goods a major part originates in the small-scale sector. Almost all the products of this sector are in the nature of consumer goods, with a significant part consisting of luxury goods. The adequate availability of consumer goods plays an important role in stabilizing and developing the economy.
Large Exports: Many products of the small-scale industries like handloom cotton fabrics, silk fabrics, handicrafts, carpets, jewellery, etc. are exported to foreign countries. Their share in the total exports is as much as 40%. In this way the small-scale sector makes a very valuable contribution to the accumulation of foreign exchange resource of the country.
Use of Latent (domestic) resources: The small-scale industries used resources which are available locally which would otherwise have remained unused. These resources are, the hoarded wealth, family-labour, artisan’s skills, native entrepreneurship, etc. Being thinly spread throughout the country, these resources cannot be used by large-scale industries which need them in big amounts and at a few specified places.
Besides using these resources, the small-scale industries provide an environment for the development of forces of economic growth. Using the hoarded wealth, these industries put into circulation savings which propel investments in the economy. These industries also provide opportunities to the small entrepreneurs to learn, to take risks, to experiment, to innovate and to compete with others.
Promoting Welfare: The small-scale industries are also very important for welfare reasons. People of small means can organize these industries. This in turn increases their income-levels and quality of life. As such these industries help in reducing poverty in the country. Further, these industries tend to promote equitable distribution of income. Since income gets distributed among vast number of persons throughout the country, this help in the reduction of regional economic disparities.
Another advantage of great significance of these industries is the upgrading of the lives of the people in general. The freedom to work, self-reliance, self-confidence, enthusiasm to achieve and all such traits of a healthy nation can be built around the activities performed in these industries. It also becomes possible to preserve the inherited skill of our artisans which would otherwise disappear. Moreover, many ills of urbanization and concentration inherent in large-scale industries can be avoided by setting up of small industries. All these benefits flow from the fact that these industries are highly labour-intensive, and that these can be set up anywhere in the country with small resources.
Problems Faced by Small-Scale Industries
The small-scale industries, despite their importance for the economy, are not contributing to their full towards the development of the country. It is because these industries are beset with a number of problems in regard to their operations. These problems are discussed below.
Inadequate Finance: A serious problem of these industries is in respect of credit, both for long-term and short-term purposes. This is evident from the fact that the supply of credit has not been commensurate with their needs associated with fixed and working capital. Very often the credit has not been timely. Its delayed availability has been a major factor in causing much of industrial sickness in this sector. The credit situation is particularly hard for the very small or tiny units.
Difficulties of Marketing: The small-scale industries also faced the acute problem of marketing their products. The problems arises from such factors as small scale of production, lack of standardization of products, inadequate market knowledge, competition from technically more efficient units, deficient demand, etc. Apart from the inadequacy of marketing facilities, the cost of promoting and selling their products too is high. The result is large and increasing subsidies which impose heavy burden on the government budgets.
Shortage of Raw Materials: Then there is the problem of raw materials which continues to plague these industries. Raw materials are available neither in sufficient quantity, nor of requisite quality, nor at reasonable prices. Being small purchasers, the producers are not able to undertake bulk buying as the large industries can do. The result is taking whatever is available, of whatever quality and at high prices. This adversely affects their production, products, quality and costs.
Low-Level Technology: The methods of production which the small and tiny enterprises use are old and inefficient. The result is low productivity, poor quality of products and high costs. The producers for lack of imformation, know very little about modern technologies and training opportunities which concerns them. There is little of research and development in this field in the country.
Competition from Large-Scale Industries: Another serious problem which these industries face is that of competition from large-scale industries. Large-scale industries which uses the latest technologies with access to many facilities in the country can easily out-priced and out-sell the small producers. With the liberalization of the economy in recent years, this problem has become all the more serious.
For all these reasons, the small producers in the small-scale industries find themselves in a very precarious position.
