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As we covered the meaning of small-scale industries in our previous blog, you must have got fair understanding of such businesses.
It is estimated that there are 63+ million microbusinesses and 0.33+ million small businesses in India.
Today, small businesses play a pivotal role in shaping the socio-economic landscape of the country, contributing to its GDP, generating employment in the rural and urban sectors, and increasing consumer spends. Whether it’s in the handloom sector or steel industry, the important role of small-scale industries (SSI) cannot be overlooked.
Let’s take a closer look at the importance of small-scale industries and understand their contribution to economic development and nation-building.
Importance of small-scale industries in India
A small-scale industry usually refers to businesses with limited capital, resources, manpower and production capabilities. It’s usually a micro, small or medium-sized business and often produces goods and services for a local and regional consumer. Not surprisingly, they can foster economic growth and even support the local communities.
As per the new MSME classification, effective from 1 July 2020, small and medium sectors are categorised as micro, small, and medium businesses. You can get further new MSME classification details in our separately covered blog.
Why are small-scale industries important?
There are some distinct differences between small and large-scale industries that characterise them. Small-scale industries and businesses usually:
- Are run by sole proprietors or families
- Engage limited manpower and resources
- Invest less in technology
- Employ regional and local manpower
- Cater to the needs of the regional market
With that understanding, we look at the advantages of small-scale industries and their role in socio-economic development.
1. Employment generation
Small-scale industries are instrumental in driving employment generation. These industries usually employ local talent, making it possible to generate employment in the local areas. Moreover, owing to the diverse business types, they employ people of varying skills and skillsets.
Let us take a look at some of the other ways in which SSI’s drive new employment opportunities with the example of small textile manufacturing centres in rural/semi-urban India:
- Employing a semi-skilled workforce in labor-intensive roles, such as spinning, weaving, and dyeing. This enables SSI’s to absorb more manpower, especially those without special skillsets or living in rural areas.
- Providing on-the-job training to the workforce enables them to enhance skills and improve employability.
- Creating alternative job opportunities in textile production (i.e., outside of agriculture) to cease urban migration.
- Building an ancillary network of cotton suppliers and distributors, dye manufacturers, and transporters, thus fostering regional development.
- Empowering women and marginalised groups financially and socially.
Also read: Small-scale enterprises in Visakhapatnam
2. Regional infrastructure development
When it comes to regional development and bringing balance to rural economies, the importance of small-scale industries is prominent. Small businesses often flourish in rural areas, making it possible for the rural economy to thrive. Unlike large-scale industries and businesses that have urban establishments, small businesses are often set up and operate out of rural or semi-urban areas.
This proves advantageous as:
- Set up expenses and operating costs are low
- Manpower is available locally, e.g., a dairy-processing unit where local farmers can process their products and sell
- Economic diversification is possible by creating business opportunities outside agriculture, e.g., food processing units, packaging centres, etc.
- Government schemes and initiatives can be availed
- Production timelines are short, leading to quick income generation and flow
- Infrastructure development, regional balance and development take place, e.g., when a region has a cluster of small businesses, there will be investments made for building roads (e.g., the PMGSY programme), telecommunications, electricity availability, transport systems, etc.
Also read: Role of MSMEs in rural development
3. Economic diversification
Of the many advantages of small-scale industry, economic diversification is one of the most visible outcomes.
- Small businesses produce a wide variety of goods and services. This allows them to often offer unique products and stay competitive. For example, a coffee grower can produce a unique coffee blend that will cater to a niche audience cohort.
- SMEs help to create economic opportunities for other small businesses. For example, for a small paper manufacturer, the produce might not be enough to sell to a large business. However, they can easily sell to a small business, which can make wrapping paper, paper bags, envelopes, notebook and other stationery items to sell.
Small-scale businesses are often flexible and can be started with low investments. As such, it is possible for them to diversify and adapt to market needs and customer preferences. For instance, a food processing unit can make different products, such as jams, papads, pickles, sauces, etc. from locally available products.
Also read: Low investment business ideas below ₹10 lakhs
4. Innovation and entrepreneurship
A key role of small-scale industries is to drive innovation and entrepreneurship to build a resilient and sustainable economy. There are several government schemes for new entrepreneurs and startups, such as the MSME Innovative scheme that has been designed to provide them with the finance, training and opportunities to start and grow their small businesses.
Since it takes low investments to start a small business, it encourages many aspiring entrepreneurs to start their own business and experiment with ideas. For instance, an entrepreneur in logistics can offer dropshipping services to customers. It’s niche, caters to specific consumer demands, and can be started with low investments.
Moreover, small businesses are more flexible when compared to large enterprises and can adapt to changing market needs. This naturally encourages a culture of change and innovation.
For instance, post-pandemic, many coaching and learning institutions have adopted an online model. This enables them to keep their businesses running and cater to students when they cannot be present physically. This has also opened up new markets and opportunities. For example, a yoga instructor providing online classes can teach students from any geography.
Also read: Top 10 business ideas in Mumbai and low investment business ideas in Delhi
5. Export opportunities
The MSME sector’s contribution to India’s GDP, employment generation and exports is significant. There are several noted products – carpets, textiles, vegetable products, and handicrafts, among others that are exported worldwide. In fact, over 40% of the total exports done by India are by small-scale industries, driving revenue and forex reserves.
In several cases, clusters can be formed to produce a specialised product for export. For example, several handloom weavers from a specific region can come together and export their range of apparel and garments under a single brand. This will enable them to have a wide product range, market and promote themselves better, gain from shared resources and expertise, stay competitive and build global recognition.
The government also encourages the same and has introduced export promotion schemes and programs.
Link to blog – List of Small Scale Industries with Photos and Examples
Future of small-scale industries in India
The advantages of small-scale industry development are many. From economic growth to fostering regional development, SMEs play a pivotal role in shaping the future. They create livelihood opportunities, cater to niche markets and products, drive innovation and empower rural communities.
Moreover, with the advent of eCommerce and digitalisation for MSMEs, their reach has expanded to global markets, fostering new trade opportunities. As India continues to develop and grow, the importance of small-scale industries and businesses will keep increasing, making them a contributor in building a resilient, growth-driven economy.
Sohini is a seasoned content writer with 12 years’ experience in developing marketing and business content across multiple formats. At Tata nexarc, she leverages her skills in crafting curated content on the Indian MSME sector, steel procurement, and logistics. In her personal time, she enjoys reading fiction and being up-to-date on trends in digital marketing and the Indian business ecosystem.
Is there a push for small-scale goods to be branded differently than mass-market items? This could be a selling point – not just where it’s made, but the craftsmanship and story behind it.
Yes, D2C companies are booking up and also helping other small scale businesses to scale the business a lot nowadays.
Such poeple and small industries work for other medium and large business to provide material or goods they need to complete chain of order. And this is how their importance grow in the ecosystem.
As a small boutique owner, what are the latest trends in inventory management software or point-of-sale systems? How can I use social media to create a loyal customer base and drive sales?
In POS and Inventory market, there is lots of competitions, you should drive your strategy carefully because small scale business like yours would need an extra edge in compare to others around automation. Pls study your product and others and give time on it, you will learn this.
Ask your team to solve most of the things to end user and bring automation in next 2-3 years so that business can evolve faster for them also.
Also study companies from UK and US where human intervention is only required to guide only. In India, Decathlon is using similar tech in POS system.