10 Importance of Small Scale Industries

Role of Small Scale Industries

Small-scale industries play a very important role in the economic development of our country. The socio-economic development of India depends upon the development of small-scale industries. This sector is contributing a lot towards the generation of employment, increasing overall production and exports.

Highlighting the importance of small-scale business even Industrial Policy Resolution 1956 states. “They provide immediate large-scale employment: they offer a method of ensuring a more equitable distribution of the national income and they facilitate an effective mobilization of resources of capital and skill which might otherwise remain unutilized.” The second Five Year Plan while recognizing the importance of small-scale industries states the following five points.

  • Generation of employment opportunities.
  • An equitable distribution of national income.
  • Mobilization of capital.
  • Mobilization of entrepreneurial skills.
  • Regional dispersal of industries.

It is evident from the above that small-scale enterprises play an important role in employment generation, resource mobilization and utilization, income generation, and in helping to promote change in a gradual and phased manner. India occupies a distinct position amongst developing countries specifically in the area of development of small-scale industries.

India has a vast reservoir of scientific and technical manpower and occupies the third position in the world as far as technical manpower is concerned. It has already emerged as a leading player in the development of software technology.

Importance of Small Scale Industries

The importance of small scale industries can be judged from the following points:

  1. Employment Generation
  2. Self Employment
  3. Optimum Use of Capital
  4. Facilitates Entrepreneurial Development
  5. Use of Local Resource
  6. Balanced Regional Development
  7. Conservation of Foreign Exchange
  8. Equitable Spread of Income and Wealth
  9. Supporting Large Scale Industries
  10. Contribution towards National Economy

Employment Generation

Small-scale industries use intensive technology, creating more jobs, including opportunities for self-employment for technically skilled individuals, artisans, and professionals. They address the pressing issue of population pressure on land and the need for more employment.

A small industry can generate more jobs for a given capital investment compared to a large-scale one. In countries like India, grappling with employment and capital scarcity, small-scale industries offer a solution. They can operate anywhere, providing employment near workers’ homes, offering more work for the underemployed, and additional opportunities for idle farmers.

Self Employment

The small-scale sector provides numerous opportunities for self-employment and hence is more for our country faced with the major problem of unemployment. A self-employed entrepreneur is the master of his own show and he thus gets the opportunity to do something creative, new, and different.

Instead of seeking a job for himself, providing employment to others working for himself creates personal interest and successful accomplishment of the task generates job satisfaction and sense of attainment.

Optimum Use of Capital

Small-scale enterprises require less capital than large ones, making them valuable in India’s capital-scarce economy. They offer a high output-to-capital ratio and employment-to-capital ratio, acting as a stabilizing force. Additionally, their shorter gestation period means early returns for entrepreneurs.

Small-scale units promote capital formation by channeling people’s small, scattered savings into productive investments. O.C. Mahalanobis noted that, given limited capital resources, large-scale factory industries cannot generate significant employment in the short term. In contrast, household or cottage industries, requiring minimal capital (around 600-700 rupees), can create ten to fifteen times more employment for the same investment.

Facilitates Entrepreneurial Development

The small-scale sector helps in entrepreneurial development. The units provide self-employment to educated unemployed and reduce their over-dependence on the government. It also generates a feeling of self-reliance among the people.

This sector generates more employment opportunities with relatively less capital investment. Large-scale industries cannot provide opportunities to a large number of entrepreneurs, who are scattered over a wide territory. Small-scale industries on the other hand can mobilize such entrepreneurial skills more effectively and put these into productive use.

Use of Local Resource

Small-scale enterprises employ local resources like raw materials, saving, and entrepreneurial skills more effectively. In the absence of these enterprises, these resources are likely to remain unutilized. Thus on the one hand small-scale sector ensures better use of local resources and on the other generates employment opportunities and income for the local population.

Balanced Regional Development

Large-scale units are normally concentrated places and this results in the generation of employment opportunities, income, and development of only these places. Whereas small-scale industries utilize local resources and promote the decentralized development of industries.

It is only through the dispersal of industries in rural and backward areas that the objective of balanced regional development can be achieved.

The small-scale sector provides employment to people in rural and backward areas and helps solve the problems of industrial slums, congestion, and pollution in industrial towns. the small-scale sector generates employment and income in backward areas to help in raising the standard of living of people.

Conservation of Foreign Exchange

Small-scale industries help in saving precious foreign exchange. Firstly small-scale units utilize local resources like raw materials and available machinery and they are not dependent on costly imports. These units also produce those products, which were earlier being imported.

Secondly, there has been a considerable increase in exports from the small sector over the years and presently this sector contributes about 35 percent to India’s total exports, thus earning precious foreign exchange for the country.

Equitable Spread of Income and Wealth

Small-scale industries help in the development of the socialistic pattern of society by ensuring equitable distribution of income and wealth. This sector inculcates the spirit of entrepreneurship among the people by providing them self-employment with limited means.

Ownership of small-scale industries is widespread and offers more employment potential as compared with large-scale industries. Large-scale industries result in the concentration of income and wealth in a few hands and that too at selected places whereas small-scale industries ensure equitable spread of income and wealth amongst all and that too at all places. Small-scale industries thus promote the objective of social justice.

Supporting Large Scale Industries

Small-scale industries can facilitate the growth and development of large-scale industries by providing various parts, components, and accessories to large-scale industries. Small-scale units serve ancillaries to large units by playing a complementary role.

Contribution towards National Economy

Small-scale industries have made rapid strides over the years and can produce a wide range of products having mass consumption. More than 5,000 different products are being manufactured in the small sector. This sector is helping in the realization of the objective of export promotion and import situation.

Nearly 50 percent of the output of the manufacturing sector in our country is produced by small-scale sectors. The small-scale sector thus plays a very important role in the economic development of our country.

FAQs Section

What is the importance of small scale industries?

The following are the 10 important of small scale industries:
1. Employment Generation
2. Self Employment
3. Optimum Use of Capital
4. Facilitates Entrepreneurial Development
5. Use of Local Resource
6. Balanced Regional Development
7. Conservation of Foreign Exchange
8. Equitable Spread of Income and Wealth
9. Supporting Large Scale Industries
10. Contribution towards National Economy.

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