Role and Importance of Small-Scale Industries

Introduction

Small-scale industries play a very important role in developing the economy of a nation. The small-scale industry in India generates employment, reducing poverty and unemployment which are considered social evils. The small-scale industry is responsible for the rural and urban growth of the economy.

The small-scale industries also play a key role in increasing manufacturing and infrastructure which leads to further development of the economy. Moreover, small- scale industries help the economy grow without producing pollution and help reduce slum areas by providing jobs to the slum residents. Therefore, we can say that small- scale industries are largely responsible for the overall economic growth of a nation.

What are Small-Scale Industries?

The industries are usually broadly divided into small, medium, and large-scale industries depending on the capital and labor required to start them. The central government plays the role of authority in determining the capital investment needs of small-scale industries. The Industries (Development and Regulation) Act, 1951 contains the rules and regulations, including the requirements of capital investment for small-scale industries.

According to this act, an industry that requires capital investment between 25 lakhs to Rs 5 crore is considered a small-scale industry. In the case of services, the capital investment requirement is between 25 lakhs and 2 crores.

Role and Importance of Small-Scale Industries

As mentioned earlier, the small-scale industry plays a key role in spearheading the growth of the economy. The role and importance of small-scale industry can be discussed under the following headings.

Increase in Production

India is one of the fastest-growing economies in the world and it has a massive production output. A large part of this output comes from the small-scale industries. According to statistics, small-scale industries account for 40% of the gross industrial output value.

• The small-scale industry is also very efficient in terms of output. For every investment of Rs 10 lakhs in small-scale industry, the production output of goods and services amounts to Rs 40 lakhs. Moreover, the addition in value in this output is more than 10%.

• Due to the profitability and increasing income from small-scale industries, the number of entities has increased dramatically over two decades in India. Whereas there were only 8 lakhs of small-scale industry players in 1980, the number increased to over 30 lakhs by 2000.This growth is even accelerated due to the government’s ‘ease of doing business policies. This resulted in a tremendous growth of industrial production in India in the small-scale industries.

Increase in Exports

Apart from growing production, the small-scale industry has been able to export its products increasingly over the period of the last few decades.

• According to statistics, half of India’s total exports come from small-scale industries. Out of this total export, 35 % is done directly by small-scale industries while 15% is done by other players in the economy.

• The small-scale industry has been the powerhouse behind international trade that not only provides external revenues but also helps a larger section of the industry to get income from international trade. Due to the growing profits in exports from small-scale industries, trading houses, and merchants also help small-scale industries in exporting their products.

Increase in Employment

• The small-scale industry also generates palpable employment in the economy. For every 10 lakhs of rupees invested in a small-scale business, nearly four persons get full employment in India. The statistics reveal that the small-scale industry is the second most employment generator in India after agriculture.

• There is one more specialty of small-scale industry’s employment generation. In the case of small-scale industry, employment is generated both in rural as well as urban areas. This helps in the equidistribution of employment and brings uniformity to the employment scenario in the economy.

Opening of New Opportunities

• Apart from increasing production, exports, and employment, small-scale industries are responsible for the opening of many new opportunities for the economy as well as the entrepreneurs.

• Investors also get many options for investing their money when small-scale industries increase.

Tax Benefits and Financial Support

• The small-scale industry also gets many tax benefits and other government aids that support them to grow. As the chances of profitability in the small-scale industry sector are tremendously positive, many people start new businesses that provide newer opportunities to entrepreneurs, job seekers, and stakeholders in general.

• As small-scale industries are less capital-intensive, they get financial support readily. Moreover, getting manpower and raw materials for small-scale industries is easier; so, they thrive naturally in the competitive environment. Government policies also favor small-scale industries highly. In a nutshell, small- scale industries are a boon for industrial growth and economic development that provide enough opportunities to its stakeholders.

Advancement of Welfare

• Apart from providing production, employment, and export growth, small-scale industries also provide welfare to society. As they provide jobs to the poor, the industry is considered a poverty eliminator that helps poor people to earn a living and help them live with dignity. By opening newer opportunities, small- scale industries provide entrepreneurs the impetus to create something new for which society may be uplifted.

• Many marginalized and resource-deprived people depend on small-scale industries for their sustenance. By providing jobs to millions of people in both rural and urban areas, small-scale industries help raise the bar of income equality. For these reasons, the small-scale industry is considered a generator of social welfare and upliftment.

Key Takeaways

• The central government plays the role of authority in determining the capital investment needs of small-scale industries.

• The Industries (Development and Regulation) Act, 1951 contains the rules and regulations, including the requirements of capital investment for small-scale industries.

• According to the Industries (Development and Regulation) Act, 1951, an industry that requires capital investment between 25 lakhs to Rs 5 crore is considered a small-scale industry. In the case of services, the capital investment requirement is between 25 lakhs and 2 crores.

• For every investment of Rs 10 lakhs in small-scale industry, the production output of goods and services amounts to Rs 40 lakhs.

• For every 10 lakhs of rupees invested in a small-scale business, nearly four persons get full employment in India.

Conclusion

The small-scale industry plays a very important role in uplifting the economy. The growth engine of the economy is run by the small-scale industry, and hence, knowing about it is important for one and all.

FAQs

Qns 1. What is the capital requirement for an industry to be termed small-scale?

Ans. According to the Industries (Development and Regulation) Act, 1951, an industry that requires capital investment between 25 lakhs to Rs 5 crore is considered a small- scale industry. In the case of services, the capital investment requirement is between 25 lakhs and 2 crores.

Qns 2. What is the production output for every 10 lakhs of rupees invested in the small-scale industry in India?

Ans. For every investment of Rs 10 lakhs in small-scale industry, the production output of goods and services amounts to Rs 40 lakhs.

Qns 3. How many people are employed for every 10 lakhs of rupees invested in the small-scale industry in India?

Ans. For every 10 lakhs of rupees invested in a small-scale business, nearly four persons get full employment in India.