Small Scale Industries in India

We live in a time of progress and urbanisation, where technology is advancing, and people are more informed about things than ever before. With this increased awareness, more and more people are enthusiastic about starting their businesses. In India, small scale industries play a special role in the economy. These enterprises can be found in the heart of busy cities or rural areas.

Small scale industries include a variety of sectors, from handicrafts to cutting-edge technology. In this blog, we will explore the world of small scale industries, their types, small scale industries examples, advantages, etc. So let's dive in and understand more about it.

What are Small Scale Industries?

As the term suggests, small scale industries engage in manufacturing, production, and service activities on a smaller scale. The initial investment in these units usually involves the acquisition of plant and machinery, with the total investment not exceeding Rs. 1 crore.

Small scale industries play a vital role in shaping the economy, as they utilise smaller machinery and employ limited manpower. Since India is a labour-intensive country, the establishment of these industries creates employment opportunities, particularly for the underprivileged. They contribute significantly to the economy by increasing the country's per capita income.

Few Updates on Small Scale Industries (SSIs)

• In recent years, there has been a significant shift in the way industries operate, particularly those engaged in manufacturing and providing services on a small or micro scale. In the past, the Ministry of Small Scale Industries in India used to register these businesses under the Small Scale Industries (SSI) category. However, in 2006, the government introduced the Micro, Small, and Medium Enterprises (MSME) Act, which brought micro-scale industries under its purview.
• To streamline administrative processes and consolidate efforts, the Ministry of Small Scale Industries merged with the Ministry of Agro and Rural Industries. As a result, the Ministry of Micro, Small, and Medium Enterprises (M/o MSME) was established on May 9th, 2007, through amendments to the Government of India (Allocation and Business) Rules, 1961. Consequently, the M/o MSME now encompasses SSIs.
• Under the current framework, the MSME Act categorises SSIs as small or micro-scale industries based on the turnover and investment limits mentioned in the Act. These businesses need to obtain MSME registration. This registration requirement can prove beneficial for small-scale industries that already possess MSME registration.

Types of Small Scale Industries in India

The following are the different types of small scale industries in India:

Manufacturing Industries

These are typically individually-owned units that produce finished products for consumption or use in processing industries. Examples of manufacturing industries include power looms, engineering industries, food processing units, etc.

Ancillary Industries

Large and multinational companies (MNCs) primarily focus on manufacturing finished products. However, these companies often depend on ancillary industries as vendors for producing various components and machines. Ancillary industries specialise in producing machinery and parts that MNCs and medium-scale enterprises use.

Industries that provide services

The service industry includes establishments that provide services like repair and maintenance shops. This includes after-sales service, repair, maintenance and upkeep of the products.

Units for Export

A small-scale unit that exports more than 50% of its output is classified as an export unit.

Units in Cottages

These small units run in the owner's home and do not require a designated facility. They generally exist in villages and form the unorganised sector. Such businesses have a higher dependence on labour to produce goods. Some examples include weaving, silverware, pottery, bamboo crafts, etc.

Village Industries

This includes small-scale units established in rural areas and part of the unorganised sector. These units are also labour-intensive. The total fixed capital investment in land, building, plant, and machinery per artisan or worker in this industry does not exceed Rs. 50,000.

Characteristics of Small Scale Industries

Ownership

Typically, small scale industries have a single ownership, a sole proprietorship, or a partnership.

Management

The owners generally control the management, and that's why the owner's participation is directly involved in the business's daily operations.

Labour Intensive

In the Indian context, small scale industries exhibit a distinctive characteristic of relying more on labour-intensive practices rather than heavily investing in advanced technologies. These industries prioritise manual labour, employing a larger workforce for various production activities. By leveraging the skills and expertise of a substantial labour force, small scale industries in India strive to meet their production targets and deliver quality goods and services. This reflects the resourcefulness and adaptability of these industries in maximising available human resources while keeping investment costs relatively low.

Flexibility

Small scale industries have an important advantage when it comes to flexibility compared to larger companies. They can easily and quickly adapt to changes in the business environment. This ability to be flexible is especially useful when unexpected changes happen in the business world. As a result, small scale industries can respond and adjust their strategies, operations, and products/services promptly. This helps them reduce the impact of unexpected events and take advantage of new opportunities that arise.

Limited Reach

As small scale industries operate with fewer machines and are more labour-intensive, they have limitations and can only fulfil local and regional demand.

Utilisation of Resources

Small scale industries are more dependent on using local resources that are available at their place and focus on optimum utilisation of resources with minimum wastage.

Use of Locally Sourced Raw Materials

Small scale industries promote intermediate and capital goods and export them but depend on local raw materials. Using locally produced raw materials helps in the country's faster and more balanced economic growth.

Shorter Gestation Period

The gestation period refers to the time it takes for the return on investment (ROI) to begin after setting up the units and starting production. Small scale industries have a shorter gestation period, allowing them to reach the break-even point quickly. As a result, the capital invested in small-scale industries is tied up for a shorter duration.

Educational Attainment

Typically, employees working in small businesses have a low or moderate level of education, and to run and manage the SSI, some knowledge and experience are essential.

One Man Army

Small scale industries typically operate as sole proprietorships or partnership firms, with owners actively involved in managing day-to-day work. They actively boost entrepreneurship capability and enable quick decision-making while constantly fostering growth.

Operations Restricted to a Specific Area

Small scale industries operate in local areas to meet local needs. Due to the lack of resources, they may be unable to expand their economic activities.

Time-Consuming

Small scale industries rely heavily on labour, so performing most tasks manually may take a lot of time to complete day-to-day operations.

Objectives of SSI

The following are the main objectives of SSI:

To Create More Employment Opportunities

Creating more job opportunities is one of the main objectives of SSIs, as the industry is majorly dependent on labour-intensive methods. SSIs contribute to employment generation and reducing the unemployment rate. Due to limited machine usage, small scale industries have skilled and unskilled job requirements, empowering the locals.

To Help Develop the Rural and Less Developed Regions

SSIs focus on developing rural areas and the less-developed regions of the country. They establish businesses in rural areas and promote economic growth, better infrastructure and a better living standard which helps reduce regional disparities and brings more balance to the economy.

To Reduce Regional Imbalances

Small scale industries aim to reduce regional imbalances in the country as they seek to expand operations in underprivileged areas and promote development, ensuring balanced opportunities.

To Ensure Optimum Utilisation of Resources

SSIs aim to utilise the country's resources to the fullest extent possible. They rely on local resources instead of sourcing them from outside, which offers an opportunity for local vendors to grow their business. Additionally, SSIs actively promote sustainable development, conserve natural resources, and encourage eco-friendly practices.

To Improve the Standard of Living of People

Micro and small-scale industries aim to increase the standard of living of people in the community as they provide jobs to the locals, which ultimately leads to better income generation, access to basic amenities, and improves the overall well-being of the people.

To Ensure Equal Distribution of Income and Wealth

SSIs play a significant role in promoting a better distribution of wealth and fostering improved income generation. Additionally, these industries create valuable entrepreneurship opportunities, as they rely on local vendors for the supply of raw materials.

To Solve the Unemployment Problem

Unemployment is a major issue in India, and rural areas face a shortage of job opportunities, leading to higher unemployment rates. The establishment of SSIs generates employment and contributes to reducing the unemployment rate.

To Attain Self-Reliance

SSIs focus more on self-reliance and having a single owner or a partner. These industries focus more on domestic production and export of finished products, which promotes manufacturing and improves the country's industrial base.

To Adopt the Latest technology Aimed at Producing Better Quality Products at Lower Prices

Small industries focus on adopting the latest technology to improve the quality of products and reduce costs. Better innovation leads to enhancing production processes and leads to healthy competition in the market.

Role of Small-Scale Industries in the Indian Economy

Make in India

The Make in India initiative by the government is to promote small scale industries and the development of industries in the country. Small scale industries are a perfect example of the Make in India initiative, as they produce goods locally and sell them in the country and overseas, thus generating more demand globally for Indian products.

Employment Opportunities

Small industries create several employment opportunities as they are more dependent on labour. With lower use of technology and higher use of locally available manpower, they provide various job opportunities and help reduce unemployment.

Increase in Export

Small scale enterprises contribute a significant chunk to the country's exports, with almost 50% of the goods exported from India manufactured by them.

Seedbed for Large Scale Industries

Small scale industries provide conducive conditions for the development of entrepreneurs in the country and act as a seedbed for Large Scale Industries. They require lower investment and are less technology-intensive, depending more on the use of local resources. They provide an ecosystem and opportunities for the growth and development of Large Scale Industries.

Public Welfare

These industries have a vital role to play in the growth and development of the country. They not only create valuable employment opportunities but also offer a chance to build wealth within the ecosystem. Moreover, they are crucial for the social growth and development of the nation.

Contribution to Total Production

Small scale industries play a significant role in the overall production of goods and services in the country, accounting for approximately 40% of the total. They contribute to both per capita income and the growth of the GDP, making them a crucial factor in strengthening the economy's development.

Small Scale Industries Examples

• School Stationaries manufacturer
• Water Bottles manufacturer
• Bakeries
• Paper Bags manufacturer
• Small Toys
• Leather Belts manufacturer
• Photography
• Beauty Parlours
• Chalk Making
• Spices Making
• Chocolate making
• Detergent Powder Making
• Slippers Making
• Rice Mill
• Honey Processing
• Biodiesel Production
• Agarbatti Making
• Clay Products
• Cashew Nut Processing
• Coconut Oil Making
• Spinning and Weaving Industry
• Candle Manufacturing
• Paper Plate Manufacturing Industry
• Incense Stick Manufacturing Industry
• Pickle Manufacturing Industry
• Xerox and Printing
• Toothpick Making
• Water Bottles Manufacturing

Pre- Requisites for Establishing Small Scale Industries

Ownership

If you are considering starting a small-scale unit, the first step would be to determine the ownership structure. You have the option to establish a sole proprietorship if you wish to run it alone, or you can choose to establish a partnership firm or a company if you have a partner.

Selection of Offering

As an entrepreneur, one of the key choices you must make is whether to focus on product manufacturing or service provision. It is vital to clearly define your objectives and the extent of your intended product range or service offerings, including setting targets for production quantity.

Location

Establishing the unit requires a location. You must identify the plot size to develop the team. Once you have finalised the location, you need to proceed with setting up your SSI and initiating operations. The SSI unit will use this location as the primary registered address.

Registration

Once the unit is physically established at the location, you must obtain the Unit and Establishment Act registration as a company or partnership, as applicable. Once you get the registration, you can start the operations.

SSI Registration

You can apply for the SSI/MSME registration after the unit obtains the Shop and Establishment Act registration, company registration, or firm partnership registration. If you apply for SSI registration before production starts, you must mention the turnover and investment details as NIL in the registration application. If you use SSI registration after the SSI unit begins production, the registration application will automatically fill out the turnover and investment details from the ITR of the unit.

Machinery and Equipment

You need machinery or equipment that meets the standards for producing goods and services.

Marketing

When you introduce a new product or service in the market, marketing plays an important role, and you must market your products or services to reach a larger audience. Social media marketing will help you get a wider audience if the product or service can be sold online.

Quality

Depending on the products you manufacture, quality certifications such as FSSAI, HALLMARK, AGMARK, BIS, etc., are crucial before product marketing.

Raw Materials

Obtaining raw materials is a critical step before commencing operations in your small-scale unit. Depending on the business requirements, you might have to create an agreement with the supplier to get you the supplies within an agreed timeframe.

Production

Once you procure raw materials, you can start the production process in your SSI. You can promote and sell the manufactured products after producing enough batches to fulfil the supply chain.

Recruitment of Manpower

Once you install machines and equipment in the unit and receive the necessary permissions, you will need a workforce to carry out the operations and obtain the required workforce to start the operations. In certain cases, the production process might require a small training before it can begin.

Power and Water Connection

Before commencing production, you may need to obtain approvals from the pollution control board and other authorities as per government regulations. Additionally, the unit will need adequate power and water connections.

Registration of Small Scale Industries

The Ministry of Micro, Small and Medium Enterprises (M/o MSME) offers SSI registration services through the Directorate of Industries of the State Government. The primary goal of SSI registration is to encourage the establishment of new Small Scale Industries (SSI) in India, fostering employment generation and contributing to the overall development of the economy.

SSI registration provides several benefits, including eligibility for various government subsidies and schemes designed to support and promote small-scale enterprises. To facilitate the registration process, the government has introduced online SSI/MSME registration through the Udyam Registration portal.

This online platform enables entrepreneurs to easily apply for SSI/MSME registration. By leveraging the convenience and accessibility of online registration, aspiring small-scale industry owners can quickly complete the necessary formalities and avail themselves of the advantages that come with SSI/MSME registration.

You can follow the following steps for SSI/MSME registration online:

Step 1: Open the Udaym Registration portal, navigate to 'For New Entrepreneurs who are not Registered yet as MSME or those with EM-II,' and click on it.

Step 2: You will be redirected to another tab where you have to fill in your 'Aadhar Number' and 'Name of the Entrepreneur' and click on the 'Validate and Generate OTP' button.

Step 3: You shall receive an OTP on your mobile number. Enter the OTP, and the PAN verification page will open. Enter PAN details and click on the 'PAN Validate' button.

Step 4: The Udyam Registration page will open, and you have to fill in all the personal details and details of the industry, such as industry name, address, bank account details and some other basic information and then click on the 'Submit and Get Final OTP' button.

Step 5: After this, the MSME registration process is complete, and you shall receive a confirmation message on your registered mobile number along with a reference number. Upon successful verification of registration, the authorities will issue the MSME Registration Certificate.

Eligibility Criteria for SSI Registration

• You can obtain a Small Scale Industry license for units that come under micro and small enterprises under the MSME Act 2006.
• A micro enterprise is an enterprise whose investment in equipment, plant and machinery does not exceed Rs. 1 Crore, and the turnover does not cross Rs. 5 Crore.
• A small enterprise is one where investment in plant, machinery and equipment does not cross Rs. 10 crores, and turnover does not cross Rs. 50 crores.

Benefits of Obtaining SSI Registration

The following are the benefits you get after getting the SSI registration:

• You will get a variety of tax benefits after you register for SSI.
• You will receive a credit for Minimum Alternate Tax (MAT) to carry forward for up to 15 years instead of 10.
• There are various government tenders open exclusively for SSIs, and you can make the most of such offers.
• If you want to expand your business, you will get easy credit from banks or financial institutions as they have different schemes for small businesses.
• Once you have obtained SSI registration, the cost of getting a patent or setting up the industry reduces as the government provides many rebates.
• The government gives a higher preference to businesses registered as small scale industries through various schemes and incentives.
• Small industries also receive collateral-free automatic loans for purchasing raw materials and filling the gap of operational liabilities, or restarting a business.

Government Schemes Supporting Small Scale Industries

Below mentioned are the government schemes that support SSIs:

• Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) provides institutional credit to small scale industries.
• Credit Linked Capital Subsidy Scheme (CLCSS) is an extension of credit for the upgradation of technology in SSIs.
• Market Promotion and Development Scheme (MPDA) helps SSIs set up marketing complexes or khadi plazas to expand the market network of Khadi and Gram Udyog products.
• Coir Vikas Yojana (CVY) scheme envisages a variety of activities such as the development of artisans, Mahila coir yojana, upgrading and establishment of a new unit under the Coir Industry Technology Upgradation Scheme (CITUS) that promotes the local community and exports, which helps trade and industry related functional support services and betterment of coir workers.
• International Cooperation Scheme helps in delegations to other nations and allows exploring technology upgradation, facilitating buyer-seller meetings in foreign states.
• Marketing Assistance Scheme helps arrange international exhibitions, campaigns and other marketing activities.
• The Procurement and Marketing Support Scheme aims at the betterment of local markets and promotes efforts for new market access.
• The Entrepreneurship Skill Development Programme scheme aims to upskill entrepreneurs in youth who wish to set up an SSI.

Administrative Bodies for Small Scale Industries

The Ministry of Small Scale Industries and the Ministry of Agro and Rural Industries established several administrative bodies that promote Small Scale Industries and help in the sustainable development of SSIs. After the merger of these two Ministries into the M/o MSME, the M/o MSME controls all small scale industries. Here is a list of the government administrative bodies that are functioning under the Ministry of MSMEs which assist the SSIs:

• Office of Development Commissioner (MSME)
• Khadi Village Industries (KVIC)
• Coir Board
• National Small Industries Corporation Limited (NSIC)
• National Institute for Micro, Small and Medium Enterprises (NIMSME)

The Bottom Line

Business in India is experiencing a significant surge, expanding beyond national boundaries and making a mark globally. The remarkable growth of small scale industries has played a substantial role in advancing the country's economy through innovative business strategies. As new entrepreneurs enter the market with fresh ideas, employment opportunities will improve, and wealth distribution will become more equitable.

Frequently asked questions

How to get Small Business Loan

What is MSME Loan

What is Short Term Business Loan

How to get Unsecured Business Loan

what are the basic requirements to get Business Loans