SMALL SCALE

INDUSTRY
SMALL SCALE INDUSTRIES ARE REFERRED TO AS THOSE
INDUSTRIES IN WHICH THE PROCESS OF
MANUFACTURING, PRODUCTION AND SERVICING ARE
DONE ON A SMALL SCALE

IMPORTANCE OF SMALL SCALE INDUSTRY

1. Employment generation: Small scale industries are one of the best
sources of employment generation in India. Employment is one of the
most important factors that determines the growth of a nation. 
2. Less Capital Requirement: Small scale industries are less capital
intensive than the large scale industries.
3. Use of resources and development of entrepreneurial skills:
Small scale industries allow for the development of entrepreneurial
skills among the rural population which is not having the scope of
large scale industries.
4. Equal income distribution: Small scale industries by generating
employment opportunities create equal income opportunities for the
youth of the underdeveloped areas.
 5. Short production time: Small scale industries have a shorter
production time than the large scale industries which results in flow of
money in the economy.

OBJECTIVES OF SMALL SCALE INDUSTRY

 To create job opportunities for the population.

 To help in the development of the rural areas of the
economy.
 To play an active role in reducing the regional
imbalances in the nation
 To help in improving the standard of living for people
in rural areas.
 To ensure there is equal distribution of wealth and
income.

Eligibility for SSI (Small Scale Industries)

The small scale industries are defined as per the MSMED
Act, 2006. According to the Act, the classification of the
industries or organisations into micro, small or medium units
depends on their capital investment in plant and machinery
or equipment. These investments are specified for both
manufacturing oriented units as well as service oriented
units.

Category Investment in plant and machinery/ equipment

Manufacturing Sector Service Sector

Micro Up to Rs. 25,00,000 Up to Rs. 10,00,000

Enterprises

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Small More than Rs. 25,00,000 up to Rs. More than Rs. 10,00,000 up to Rs.
Enterprises 5,00,00 ,000 2,00,00 ,000

Medium More than Rs. 5,00,00,000 up to Rs. More than Rs. 2,00,00,000 up to Rs.
Enterprises 10,00,00 ,000 5,00,00 ,000

ADVANTAGES OF SMALL SCALE INDUSTRIES

 Close Supervision: The small producer can himself

supervise the minutest details of the business.
 Nature of Demand: The small producer has an
advantage over the large producer, when the demand is
either small or is constantly changing. He has thus a
sphere of his own where he has an advantage over the
large scale producer.
 Need of small Capital: The small scale production
can be started with small capital. Where there is
shortage of capital, the small scale industries are of great
advantage for the development of industries.
 Direct Relation between the workers and the
employers: In small scale production less workers are
employed. Therefore, a close relationship exists between
the employer and the workers. Because of this close
relationship, the employer can look after the well-being
of his employees and employees, too, consider their
work as their own and the work goes on smoothly
without any disputes between the two parties.
 Direct relation between the customers and
the producers: The small scale producers generally
cater to the local demand. Hence, they remain in touch
with their customers. A small producer personally knows
his customers. Therefore, he can produce goods
according to the taste and fashion of each individual
customer.
 Easy Management: The management of small
business is easy and economical. Simple accounts and a
few persons can manage the job well.

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  Freedom of work: There is complete freedom of
work in a small business organisation. Workers are more
or less self-sufficient. They are not dependent on the
capitalists and carry on their jobs freely.

DISADVANTAGES OF SMALL SCALE INDUSTRIES

 High Cost of Production: The cost of production

per unit increases because there is a high cost of
labour, a very little scope for division of labour and
lesser use of machinery.
 Wastage of by-products: In the small scale
production, it is not possible to make economic use of
the by-products, as in the large scale production. By-
products of the small producers generally go waste.
 Less use of Machines: In the small scale
production, there is less scope for the use of
machines. As a result, these firms cannot take
advantages of the use of the machinery.
 Lack of Division of Labour: In the small scale
industries, the size of production is small, and there is
lack of division of labour and less profits to the
entrepreneurs.
 Difficulty in getting loans: It cannot enjoy the
financial economies. Funds are either not available
and if available, they have to pay higher rate of
interest.
 Difficult to Face economic crisis: Because of
the limited resources and financial weakness, the
small scale producers cannot face economic crisis.
The producers do not have the capacity to bear losses
for long. In fact, under a small economic crisis, many
small factories are closed down.
 Costly Raw Materials: In the small scale
production, raw materials are purchased in small

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 quantities which are available to the small producer at
higher prices.