Small Scale & Cottage Industries

Small Scale Industries are industries in manufacturing, production and rendering of services are done on small scale. The investment limit is up to Rs.5 crore while the annual turnout is up to Rs. 10 crores.

Cottage Industries are usually very small and are established in cottages or dwelling places. Khadi and Village Industries Commission (KVIC) is a statutory organization that promotes village industries that also helps cottage industries.

Difference between small scale and cottage industries: In Small scale industry outside labour is used whereas in cottage industries family labour is used. SSI uses both modern and traditional techniques. Cottage industries depend on traditional techniques of production.

In accordance with the provision of Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified in two Classes:

  • Manufacturing Enterprises: The enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the Industries Development and Regulation Act, 1951. The Manufacturing Enterprise is defined in terms of investment in Plant & Machinery.
  • Service Enterprises: The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment:

This is an important topic for the IAS Exam. In this article, relevant information regarding small scale and cottage industries have been provided.

Small Scale & Cottage Industries (UPSC Notes):- Download PDF Here

Candidates can also read similar topics from the links provided below:

MSME Samadhaan Economy This Week – MSME Reforms
Core Sectors Prime Minister Employment Generation Programme

Classification of MSMEs – Comparison

Comparison based on Investment in Plant, Machinery or Equipment
Micro Enterprises Not more than Rs.1 crore and Annual Turnover; not more than Rs. 5 crore
Small Enterprises Investment in Plant and Machinery or Equipment:
Not more than Rs.10 crore and Annual Turnover ; not more than Rs. 50 crore
Medium Enterprises Investment in Plant and Machinery or Equipment:
Not more than Rs.50 crore and Annual Turnover ; not more than Rs. 250 crore

Contribution of Small Scale Industries

The major contributions of the small scale industries towards economic development are stated below:

  • As per the National Sample Survey (NSS) 73rd round, there (2015-16) are a total of 633.88  lakh unincorporated non-agriculture MSMEs in the country engaged in different economic activities. As far as employment is concerned, the MSME sector has been creating 11.10 crore jobs (360.41 lakh in Manufacturing, 0.07 lakh in Non-captive Electricity Generation and Transmission, 387.18 lakh in Trade and 362.22
    lakh in Other Services) in the rural and the urban areas across the country.
  • Small Sector in 2015-16 (Latest Data as published in MSME Ministry Annual Report 2019-20) provided employment 31.95 lakh people. That is around 2.88 per cent of the total employment in the MSME sector.
  • SSIs are conducive to the economic development of underdeveloped countries like India. Such industries are relatively labour intensive so they make economical use of scarce capital.
  • Small scale industries are instrumental in reducing the inequalities in wealth.
  • In these industries, capital is widely distributed in small quantities and the surplus of these industries is distributed among a large number of people.
  • Small scale industries bring about regional dispersal of industries and alleviate regional imbalances.
  • Small-scale industries make use of local resources including the capital and entrepreneurial skills which would have remained unused for want of such industries.
  • The small industry sector has performed exceedingly well and enabled the country to achieve a wide measure of industrial growth and diversification.
  • In these industries, relations between employers and employees are direct and cordial. There is hardly any scope of exploitation of labour and industrial disputes.

Important Facts:

  1. Originally, there was a ministry of small scale industries, however, it along with the Ministry of Agro and Rural Industries were merged with the Ministry of MSME on 9th May 2007.
  2. In September 2015, Udyog Aadhaar Memorandum (UMA) replaced the system earlier used by the small scale units to register in District Industries Centre (DIC).

Government Measures to Promote Small-Scale Industries

Organisational measures

  • Establishment of Boards
  • National Small Industries Corporation (NSIC)
  • Industrial Estates
  • District Industries Centre (DIC)

Financial measures

  • Small Industries Development Fund (SIDF) – set up in 1986 to provide refinance (i.e. finance to the financial institutions in lieu of their lending to SSIs) assistance for development, expansion, modernization, rehabilitation of SSIs.
  • National Equity Fund (NEF)
  • Single Window Scheme (SWS)
  • Small Industries Development Bank of India (SIDBI):—lt was established in October 1989 by an amalgamation of small Industries Development Fund (SIDF) and Natural Equity Fund (NEF)

Fiscal Measures

  • Small-scale enterprises having turnover, up to Rs 1 crore are fully exempted from the excise duty.
  • The concessional rate of customs duties is levied on the import of certain kinds of raw materials and components used by SSIs.
  • Price and purchase preference is granted to products manufactured in the small-scale sector in government purchase programme.

Technical assistance

  • Small-scale Industries Development Organisation (SIDO):—It was established in 1954. SIDO provides technical, managerial, economic, and marketing assistance to SSIs through its network of extension centres and service institutes.
  • Council for Advancement of Rural Technology (CART):—It was established in 1982 to provide technical assistance to rural industries.
  • Technology Development and Modernisation Fund (TDMF):—It was set up for the technological upgradation and modernization of the export-oriented units.

Reservation of items for SSIs

  • The policy to reserve certain items for the small-scale sector was introduced in 1967.
  • It aims to promote the SSIs by protecting them from competition with the large-scale units. In April 1967 there were only items in the reserved category which were increased in several phases to 873 in 1984.
  • The policy of reservation was widely criticized by several economists because it adversely affected the production and productivity of the reserved items. So, the government appointed the Abid Hussain Committee to review the policy of reservation of items for the SSIs.
  • The committee gave its report in 1997 with the observation that the policy of reservation has actually reduced the competitiveness of the SSIs engaged in the production of such items.
  • Only a few SSIs were involved in the production of the reserved items and their output was almost negligible in comparison to the total output of the SSIs. Thus, the committee recommended that the policy of reservation of items for SSIs should be abandoned.

Problems of Cottage and Small-Scale Industries

The major problems faced by the cottage and small-scale industries are stated below:

  1. Non-availability of timely and adequate credit.
  2. Inefficient management
  3. Lack of infrastructure
  4. Technological obsolescence
  5. Limited availability of raw materials
  6. Marketing problems
  7. Competition with large-scale industries and imports.
  8. Excessive burden of local taxes
  9. Widespread sickness

Small Scale & Cottage Industries (UPSC Notes):- Download PDF Here

Related Links:

UPSC 2021 Calendar UPSC Books
UPSC Syllabus UPSC Notes
NCERT Notes For UPSC UPSC Prelims
UPSC 2021 UPSC Current Affairs
Economy Notes UPSC Question Paper

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