Role and Importance of Small Scale Industries

Small scale industries are important because it helps in increasing employment and economic development of India. It improves the growth of the country by increasing urban and rural growth. Role of Small and medium scale enterprises are to help the government in increasing infrastructures and manufacturing industries, reducing issues like pollution, slums, poverty, and many development acts. Small scale manufacturing industries and cottage industries play a very important role in the economic development of India. If any amount of capital is invested in small scale industries it will help in reducing unemployment in India and increasing self-employment. The industry is a sector in which the production of goods is a segment of the economy. Let us learn more about the importance of Small scale industries and how SSI helps in developing the country.

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Small Scale Industries Definition

Previously, the definition of small scale industries depended upon the business’s capital and labour. This definition is still used to demarcate between small, medium and large-scale industries.

The Central Government has the authority to determine capital investment requirements for small-scale industries. These requirements are listed under the Industries (Development and Regulation) Act, 1951.

A small enterprise in which investment in plant & machinery ranges between Rs. 25 lakhs to Rs. 5 crores is a small-scale industry.

Similarly, for industries that provide services, the investment requirement is between Rs. 10 lakhs and Rs. 2 crores.

Browse more Topics under Scales Of Business

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• Role of SSI in Economy
• Large Scale Industries
• Public Enterprises and their Structures
• Development of Public Enterprises in India
• Multi-National Corporations

Role and Importance of Small Scale Industries

• Increases production
• Increases total exports
• Improves the employment rate
• Opens new opportunities
• Advances welfare

Every small-scale industry plays a big role in the Indian economy. Apart from providing employment to crores of people, it has the added benefit of minimum capital requirements. The government also offers several tax benefits to SSI for this purpose.

Furthermore, they can exist in urban as well as rural areas. Small Scale Industries have been able to compete with large-scale industries and multinational corporations because of this. Due to reasons like these, they are of great importance.

Learn more about Characteristics Examples of Small Scale Industries here.

The following are some specific roles that SSIs play in the Indian economy:

1. SSI Increases Production

India is one of the world’s fastest growing economies in the world. Consequently, its production output is massive. It is pertinent to note that SSIs contribute almost 40% of India’s gross industrial value.

These industries produce goods and services worth over Rs. 40 lakhs for every investment of Rs. 10 lakhs. Furthermore, the value addition in this output increases by over 10%.

Here is another interesting statistic about Small scale industries. The number of Small Scale Industries in India increased from around 8 lakhs in 1980 to over 30 lakhs in 2000.

This figure has grown even more in recent years owing to the government’s ‘Ease of Doing Business’ policies.

As a result of this, the total industrial production output rose tremendously in the last few years. SSIs are, therefore, strongly responsible for the growth of India’s economy.

2. SSI Increases Export

Apart from producing more goods and services, SSIs have been able to export them in large numbers as well.

Almost half of India’s total exports these days come from small-scale businesses.

35% of the total exports account for direct exports by SSIs, while indirect exports amount to 15%.

Even trading houses and merchants help SSIs export their goods and services to foreign countries.

3. SSI Improves Employment Rate

It is important to note firstly that Small Scale Industries employs more people than all industries after agriculture.

Almost four persons can get full employment if Rs. 10 lakhs are invested in fixed assets of small-scale sectors.

Furthermore, SSIs employ people in urban as well as rural areas.

Consequently, this distributes employment patterns in all parts of the country and prevents unemployment crisis.

4. SSI Open New Opportunities

Small-scale industries offer several advantages and opportunities for investments.

For example, they receive many tax benefits and rebates from the government. The opportunity to earn profits from SSIs are big due to many reasons.

Firstly, SSIs are less capital intensive. They even receive financial support and funding easily.

Secondly, procuring manpower and raw materials is also relatively easier for them. Even the government’s export policies favour them heavily.

5. SSI Advances Welfare

Apart from providing profitable opportunities, Small Scale Industries play a large role in advancing welfare measures in the Indian economy as well.

A large number of poor and marginalized sections of the population depend on them for their sustenance.

These industries not only reduce poverty and income inequality but they also raise standards of living of poor people. Furthermore, they enable people to make a living with dignity.

Solved Question on Importance of Small Scale Industries

Question: Match these features of SSIs with the nature of the roles they play in the economy.

1. SSIs increase industrial output value by almost 10%                 A. Welfare

2. Export policies of the government favor SSIs                             B. Employment

3. SSIs contribute to 35% of India’s total direct exports                C. Production

4. SSIs raise living standards of people                                             D. Opportunity

5. SSIs employ both urban as well as rural populations                E. Export

Answers:    (1) ↔ (C)          (2) ↔ (D)          (3) ↔ (E)          (4) ↔ (A)          (5) ↔ (B)