What are small scale industries? Meaning, characteristics, and examples

Small scale industries play a pivotal role in shaping the socio-economic conditions of most countries, especially developing countries. In India, the MSME sector’s contribution to the GDP, employment generation, exports, and overall rural development is enormous making it a priority sector for the government.

Let us take a look at the meaning of small industries, their key characteristics, small scale industries examples, the small scale industries list, and the role of small businesses in rural India.

What are small scale industries?

Before we elaborate on small scale industries definition, let’s understand what is an industry?

Industry definition: An industry can be defined as a group or cluster of companies engaged in the manufacturing of the same product or providing the same services which is their primary business activity.

Small scale industry meaning: Small-scale industry is an industry where the manufacturing and production of goods and rendering of services are done on a small/low scale.

Small scale businesses work with lesser manpower and investments, use manual or semi-automatic machines and equipment (at times advanced machines), and have small production capacity.

Some small scale industries in the rural sector also use indigenous technologies which enables local development and utilisation of resources. They also have a smaller customer base and market presence and usually cater to regional and domestic markets. In certain cases, they also cater to international customers but on a smaller scale.

As per the revised MSME classification of businesses and industries, a small business is one where:

• Annual turnover does not exceed ₹50 crores
• Investment in plant and machinery and equipment does not exceed ₹10 crores

This classification aims to promote economic wellbeing and growth and generates employment opportunities especially in the rural sectors.

Small scale businesses vs. Small scale industries

While the two terms: small scale industries and small-scale businesses, are often used interchangeably.

Here are some minor differences between them:

What is an example of a small industry?

Now that we understand the meaning of small-scale industries, let’s take a look at some small-scale industry examples.

Few examples of small-scale industries in India:

• Spices manufacturing
• Pickles and papad making
• Bakery and chocolate making
• Incense stick and camphor manufacturing
• Candle and wax product making

These are a few examples only, and we have covered a detailed list of small-scale industries with photos and examples in our separately covered blog.

Link to blog – List of Small Scale Industries with Photos and Examples

What are the characteristics of small-scale industries?

Small-scale industries in India have some unique characteristics and traits that highlight not only their operational models but also their importance in the Indian economy.

• Proprietary ownership: Small-scale businesses are usually entrepreneurships, sole-proprietor or family-run businesses, with business decisions being taken by the owner or decision-making member in the family.
• Low capital investment: Small-scale industries don’t make heavy investments in plant, machinery, technology or infrastructure. While the cap is set by the government (i.e., MSME classification), the sector-wise investment level varies. For instance, investing in manufacturing ceramic will be more than opening a stationery shop. Low investment levels also reduce entry barriers, encouraging more entrepreneurs to be self-reliant.
• Labor intensive: In many cases, small-scale industries are labour intensive. That is, though the manpower count might be low, most of the work is done manually using traditional methods. Moreover, human labour and skills are sourced locally, creating employment opportunities for the local population, thus highlighting the role of small businesses in rural India development.
• Limited production capacity: These businesses have smaller production capacity. They do not work on mass production but focus on building niche products for local and domestic consumption. For instance, a toy manufacturer might be making toys for regional markets only.
• Better utilisation of resources: They optimise by utilising local skills and resources. This includes both human resources and raw materials procured locally, in turn promoting local economies and reducing excess wastage.
• Flexibility: Small-scale businesses are highly flexible and can adapt to changing markets and customer needs. For instance, a logistics company providing PTL services can extend its service scope to FTL and LTL services based on customer demand. A handloom garments manufacturer can add men’s clothing to its product range easily as per customer and market requirements.

Understanding these characteristics of small scale industries helps in appreciating the role of small scale businesses in rural and urban development and bringing sustainable regional growth and self-reliance.

What are the objectives of small-scale industries?

Small-scale businesses are the backbone of rural and semi-urban India and facilitate nation-building across several socio-economic objectives. Some of the key objectives of small-scale industries in India are:

• Employment generation at the local and regional level, by hiring local talent and reducing urban migration
• Utilisation of local resources, including raw material procurement from local sellers, adding value to the local ecosystem
• Bringing regional balance by promoting industry development regionally, in turn reducing income disparity and facilitating infrastructure development
• Fostering innovation by encouraging local entrepreneurs to start a business with minimum capital investment
• Crafting products unique to rural India for foreign exchange generation through international trade and exports

Also read: How to start an export and import business

What are some business ideas for small-scale businesses?

Business ideas for small and large-scale industries can overlap. What matters is the scale, investment, production capacity and other components. However, there are some small-scale business ideas that can be started with minimum investments and efforts.

Small-scale business ideas in India:

• Organic vegetable farming: Requires basic farming tools and organic seeds and initial investments of around ₹50,000 to get started
• Custom jewellery designing and making: Basic investment of ₹30,000 – ₹50,000 on tools and materials and can earn high-profits based on creative designing and local sales
• Handmade craft store: Can be done online or offline (by renting a store) and making investments in materials, local artisans, etc.
• Shop for mobile repair and accessories: Set up cost on ₹50,000 for tools and infrastructure and training required
• Event management services: Requires minimum investment for creating marketing collaterals, renting office space, internet, telephone and other infrastructure

Also read: Creative MSME business ideas with low investment

Role of small businesses in rural India

It goes without saying that small-scale businesses play a pivotal role in rural development and sustaining local communities. It helps in:

• Employment generation: Though job opportunities for skilled and unskilled work
• Skill development: By providing a platform to learn and enhance skills and for local craftsmen to preserve cultural techniques and knowledge
• Local resource utilisation: Using local resources such as agricultural products, raw materials, crafts, and more, in turn supporting the local economy and building self-reliance
• Self-reliant economy: By ensuring that money comes in from outside and circulates within the community, and hence bring economic stability
• Business idea generation and entrepreneurship: By providing a testing ground for individuals to innovate and cultivate new business ideas that can eventually be scaled

How many small-scale industries are there in India?

When it comes to micro, small and medium-scale industries, it’s recommended for businesses to register as MSMEs on the Udyam portal to reap specific benefits.

Currently, as of May 2024, as per the Udyam portal fact sheet, there are 2,50,18,591 units registered as microenterprises and 7,01,053 units registered as small enterprises on the portal (i.e., these businesses are MSME Udyam registered; there are many other small businesses that are not registered on the portal).

For more information, visit Udyam’s official website: //udyamregistration.gov.in/Government-India/Ministry-MSME-registration.htm

Why get your business registered as a small-scale industry?

If your business comes under any of the classifications set down by the Ministry of MSME, then it is eligible to be registered as an MSME on the Udyam portal. Small-scale industry registration in India, also known as the MSME registration, can be obtained by signing up on the Udyam portal and completing the registration. Once you have an Udyam registration, you can enjoy the following benefits:

• MSMEs are eligible for priority sector lending from banks
• They can enjoy MSME-specific schemes introduced by the Ministry of MSME
• MSMEs can participate in government e-Tenders and take advantage of the 20% quota for MSMEs on public procurement
• Udyam-registered businesses get tariff subsidies and tax and capital subsidies
• Small businesses have access to collateral-free bank loans with cheaper interest rates

Small-scale manufacturing entities and other small businesses in India benefit from the several government policies tailored for their growth. Getting an MSME registration can open many doors including government tenders, cheaper bank loans and international trade fairs.