Small scale vs large scale industries: Characteristics & differences

As a business owner in India, the terms small- and large-scale industries are not new to you. A handicraft business and a steel manufacturing company are typical examples of small scale and large scale industries respectively. Even for the government, the dilemma is never-ending – whether to increase the number of exemptions and subsidy schemes for MSMEs, or to allow large businesses to prosper by adding new benefits, financial support, and expansion opportunities.

The MSME sector in India contributes to its GDP , exports, and employment generation, especially in the rural areas. Large businesses on the other hand employ thousands, promote technology innovation, get foreign reserves, drive skill enhancement, and facilitate economic growth.

As can be gathered, both have their role and can contribute towards reaching the goal of becoming a US $5 trillion economy by 2025-26. On that note, let us understand the difference between small scale industries vs large scale industries, and their important role.

Small-scale industries and large-scale industries in India

Though there is a specific list of businesses under the MSME sector, most businesses can be categorised as small or large based on the investment made in plant and machinery and annual turnover. MSMEs or micro, small, and medium enterprises have lesser investments and turnover as compared to large businesses. Other factors like number of people employed, geographies covered etc. are also factored in when defining small and large businesses. Let us take a look at them.

Meaning of small scale and large scale industries

What are small scale industries (SSI)?

Small scale industries can be defined as businesses with limited capital investment and lesser manpower, producing goods or rendering services in small quantities. They usually use basic technology and equipment in plants, and cater to local, regional or domestic markets.

They can be found both in rural and urban India, contributing to employment generation in the areas. The role of small-scale industries or SSIs in the rural sector is critical as they often provide employment to unskilled labourers.

Under the Ministry of MSME, the National Small Industries Corporation was developed  to offer aid and promote growth in the small-scale sector.

What are large scale industries?

Large-scale industries, on the other hand, refer to enterprises that are characterised by huge capital investment in plant and machinery, have high-value annual turnovers, employ a significant workforce, and cater to wider markets including international markets.

Large industries can be seen both in rural and urban areas and play a critical role in bringing in foreign reserves, providing employment, and creating growth opportunities. They are also characterised by their adoption of advanced technology for production and in processes, purchase of bulk raw material, and investment in infrastructure development.

Examples of large- and small-scale industries

Listed below are some examples of small-scale and large-scale industries in India:

Small scale industries	Large scale industries
Home based or small setup for bakeries, confectionery, pickle and papad making	Iron and steel industry, automobile industry, shipbuilding, real estate construction
Beauty salons, garment boutiques, shoe stores, non-precious stones jewellery	Energy, petrol and natural gas industry
Paper bags/plates/glasses manufacturing, tissue making, stationery manufacturing, homemade candle, cookies, chocolate making	Banking, insurance and financial services, Telecommunications and IT industry, electronics and semi-conductor
Small toy manufacturing, earthenware, utensils, electronics repair and maintenance stores	Textile industry, cement industry, paper industry
Cottage and village industry, khadi industry, power looms	Pharmaceuticals and global health care sector

It must be noted that small businesses can also operate in sectors prominently featuring large businesses. For instance, there can be independent real estate developers working on smaller projects in regional markets. Initiatives like the MSME cluster development programme, has helped many small businesses to come together and leverage benefits and facilities to face common challenges.

Small-scale industries vs Large-scale industries: Differences, features, characteristics, advantages

In the next section we will look at the key features and characteristics to identify similarities and differences between small-scale and large-scale industries in India.

What are the characteristics of small and large scale industries?

Features of small scale industries:

• These can be micro businesses or small businesses, as per the new definition of MSMEs
• Small businesses, can be owned by a single individual (e.g., sole proprietorship or OPC) or built as a partnership (e.g., LLP)
• Owners have control over the running of the business, though responsibilities and liabilities can differ (e.g., for OPC, the business owner and company are considered as separate entities)
• Registering a small business comes with minimum documentation and legal procedures, can be incorporated in a few days, also enjoy several exemptions and tax benefits for MSMEs
• Usually low on capital investment, annual turnover, workforce employment, skill sets, and technology adoption
• Can be set up in urban and rural areas, usually employ rural workforce, and contribute to the economic development of the region

Features of large scale industries:

• Large businesses are usually incorporated as a private company (of the new Companies Act, 2013 of the MCA)
• Directors, managers, chief officers are designated as employees, directors require DPIN (Director Identification Number)
• There is a systematic procedure for company registration (e.g., Memorandum of Association and Articles of Association with company objectives, directors, nature of business and other details required; Certificate of Incorporation by the Registrar of Companies required)
• High on capital investment, annual turnover usually runs into crores, workforce in hundreds or thousands at least, and high on adoption of the latest technology trends
• Can operate out of rural and urban areas employing local or a diversified workforce; usually works with several other businesses to drive overall growth

How are small and large scale industries different?

Classification of industries as small and large help the government to recognise their contributions and provide required aid to drive their growth. For example:

• There are several subsidy schemes for MSMEs introduced that registered MSMEs can avail for their businesses
• DPIIT recognised startups and MSMEs can also register on the GeM portal, list products on GeM, and sell directly on the GeM portal or participate in government tenders
• Entrepreneurs and start-ups innovating in the agro-space can leverage benefits of the ASPIRE scheme for their business

So, let us take a look at how large and small scale businesses are different.

Small vs large scale industries in India: Main differences

Particulars	Small scale industry	Large scale industry
Ownership	Individual ownership or limited liability partnership	Company run by Board of Directors and other designatory
Investment	Minimum investment in plant and equipment (usually not more than ₹10 crore)	High investment in plant, infrastructure, machinery, technology (can run into crores)
Scale of operation	Small setup with limited production and expansion capacity	Large setup with scaling capabilities across multiple units
Resources	Low on workforce (e.g., micro businesses can run with <10 employees), limited requirement of raw material usually sourced locally, uses modest machines and capabilities, works with skilled and unskilled workforce	Large workforce (can run into thousands) across units, high raw material requirements across geographies, supports multiple other ancillary businesses (e.g., logistics and transportation), uses state-of-the-art infrastructure and machines; usually works with skilled workforce and provides regular skill enhancement training
Tech adoption	Minimum; limited funds to invest in tech or workforce training	Advanced; to keep up with global tech trends
Turnover	Micro businesses up to ₹5 crore, Small businesses up to ₹50 crore (as per the new MSME definition)	Usually runs into hundreds of crores
Markets	Usually regional and local markets	National and international markets
Compliance	Adherence to basic compliance (e.g., MSME registration, company incorporation, GST and ITR filings etc.)	Strict adherence to all legal and regulatory compliances (e.g., company audit, taxes, duties, business licences, employee compliance like PF, ESI etc.)

 

Closing thoughts: Why are large scale and small scale industries in India needed?

As a business owner, the next question you are likely to ask is: What is the role of small and large industries in India?

In general, there are many benefits of small and large sector businesses. For instance, some of the advantages of large-scale industries are:

• Bulk, large scale purchase of raw materials from local and national markets (e.g., for building construction, real estate companies will bulk buy TMT bars and other raw materials)
• Cost per unit of product is low (i.e., economies of scale) as volumes are being manufactured using machines in lesser time
• There are lesser wastage as large enterprises identify ways to recycle products and keep production in an environmentally friendly way

Similarly, there are advantages of small-scale industries such as:

• Generate employment in the rural and underdeveloped areas, providing jobs to unskilled workers, and building sustainable businesses for self-reliance
• Usually relies on handicraft, khadi and collage industries and other local made goods
• Drives MSMEs contribution to rural development through exports catering to the high demand for Indian handicraft goods

As can be understood, there is a place for both in our economy. At Tata nexarc, a B2B platform for emerging businesses, our goal is to enable MSMEs solve their challenges and accelerate growth. We provide a wide range of services to enable MSMEs access loans and funds, get affordable transportation services, and more, to support them in their growth journeys.