Micro, Small & Medium Enterprises

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:

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
What is Cottage Industries?

Cottage industries are small and informal industries established in cottages or dwelling places. They are
small-scale units or manufacturing businesses managed by family members from their homes or
establishments usually near their homes. They are the backbone of the Indian economy. In India, the
Khadi and Village Industries Commission (KVIC) is the organisation that promotes village and cottage
industries.

The cottage industries rely on local labour due to a small investment in the business. They are usually
unorganised or decentralised manufacturing businesses operated from homes using local raw materials
and simple hand-operated tools.

Types of Cottage Industries In India With Examples

India is known for its diversified culture and has enormous cottage industries, from handicrafts to
traditional cottage industries. However, the types/list of principal cottage industries in India is as
follows:

Cotton weaving: The cotton weaving business is an important industry in India. Cotton clothing is worn
across the country. Thus, the expertise dates back to ancient times. Cotton clothing is famous for its rich
colour, classic design and patterns created using handlooms by skilled weavers. Tamil Nadu,
Maharashtra and Gujarat have the most cotton production.

Silk weaving: Silk weaving is a well-known cottage industry in India. Silk is a key exporter and producer in
our country, domestically and internationally. Karnataka is the top silk producer state, accounting for
around 70% of the silk weaving industry. Tassore, Mulberry, Eri and Muga silks are produced across the
country.

Carpet weaving: The carpet weaving industry was introduced to India during the Mughal period. The
Kashmiri carpet is famous for its unique texture and quality. Similarly, coir and durries carpets are also
preferred. The carpet industry is spread across the country, with most of them situated in Rajasthan,
Kashmir, Uttar Pradesh, Punjab and Andhra Pradesh. The Indian government has also established the
Carpet Export Council to promote knotted rugs across the country.

Leather production: India is a significant producer of high-quality leather to worldwide markets, roughly
10% of global demand. The leather sector employs around 2.5 million people and is one of the largest
export earners. West Bengal, Tamil Nadu and Uttar Pradesh are the top states that produce leather.

Metalworks: In India, metal is utilised to create utensils, figurines, jewellery and other items. India’s
metal handicrafts are well-known worldwide and contribute substantially to the country’s economy.
Metal handicrafts are made with hand-operated tools and without using high-tech equipment.

Role of Small-Scale and Cottage Industries In India

The cottage industry provides ample employment opportunities, resulting in reduced poverty.

It is considered one of the effective means for a balanced regional development of the rural economy.

It promotes women’s self-reliance since they play a significant role in these industries at the working
and managerial levels.

It provides allied services to big units since they do not produce raw materials such as small tools, spare
parts, woollen products, etc., but procure them from the cottage and small industries.

They are eco-friendly and energy-efficient industries with low levels of emission.
 They utilise local skills and have low capital requirements.

They hold high export potential since their traditional, environment-friendly, and unique products have
substantial global demand.

The New Industrial Policy 1991 specifies the significant roles of public, private, joint & co-operative
sector, etc. This policy entails the government’s vision towards the industries, industrial
establishment, their functioning, progress and management. This Industrial policy was designed to
create a high wave of industries in the country with high productivity, foreign investments, and
diversity in ownership.

Objectives of New Industrial Policy 1991

The New Industrial Policy, 1991 was implemented to liberate the industrial industry from the
shackles of the licensing system which had no space for the role of the public sector. Moreover, the
policy seeks to increase foreign investment in the country’s industrial development. The other main
objectives of the new industrial policy 1991 are:

1. Relieving the country from regulations like licenses and controls.

2. Providing support to the small scale sector.
3. Increasing the competitive culture among the industries to benefit the public at large.
4. Providing more incentives to the backward areas and their local people.
5. To ensure a fast pace of industrial development to cope with the developed countries.
6. In order to liberalize the economy from varied government restrictions.
7. To liberate the private sector, to work independently.
8. To ensure the increment in exports and liberalize imports.
9. To increase employment opportunities
10. To liberalize the economy

Salient Features of New Industrial Policy

1991
Localisation Policy
After this policy, if any industrialist seeks to implant industry in a city comprising less than 1 million
population, then prior permission of the government is required. For the cities having a population of
more than 1 million, other than pollution-free industries, all industries are supposed to establish their
plants 25 km away from the boundary of the city.

Liberalization policy
This policy exempts all the industries except 18 industries, from the licensing procedures and
system. Those exceptional 18 industries comprise Army & Defense, Forest Conservation, goods
manufacturing Industries, etc.

Foreign Investment
This policy has provisions for favoring foreign investments. It is provided to invest up to 51 per cent
by foreign companies in the equity shares of companies in India. This move and vision of the Indian
government shall help to increase the flow of foreign capital into Indian markets.

Role of Public Sector

This policy will act as a backbone for those public sectors, which are at the edge of their downfall.
Those public sectors that are not doing well in their sector, but have the potential to improve, shall
be reconstituted. Various public sectors undergoing regular financial crises shall be kept under
observation by the “Board of Industrial and Financial Reconstruction” or by any other Central
Government Organisation.

Worker’s Participation in Management

This policy is worker-friendly, it has provisions that empower the worker to participate in the
management discourse of the industrial unit. This has been done in order to manage sick units

Foreign Technology
With the foreign investment and foreign imports, this policy has created a positive impact by
attracting foreign technology. Now, no such prior permission is required while importing any foreign
tech machine worth up to One Crore rupees. Now, Indian companies are free to bargain and
negotiate on their own terms without any prior permission from the government of India.