All You Need to Know about Small Scale Industries

Clothing, ready-to-eat food, smartphones, cars, modern medications, and concrete are all available in the modern world to meet the demands of living creatures. Where do all these commodities originate from, one must wonder? Earlier in the seventeenth century, the globe had yet to discover something that would drastically transform people’s lives.

Individuals in the seventeenth century lived in an agrarian economy, where food came from agricultural fields, clothing came from handwoven textile mills, and smartphones were non-existent. The Industrial Revolution, which introduced modern-day machines that could manufacture and produce items at a much faster rate, came along in the 18th century.

Therefore, to return to our original issue, where do all of these items originate? They originate in the Industry. Despite the fact that industries have progressed since the Industrial Revolution, industries still produce the majority of commodities today.

Consider the move from horse-drawn carriages to vehicles. People used to travel between cities or states in their carriages back in the day. Cars were invented as a result of the Industrial Revolution, and they not only help you travel faster, but they also have modern-day technology like air conditioners and stereos to keep you entertained as you travel in luxury.

Industry-based production has altered our lives in more ways than we can fathom. However, the industries are divided into two categories: small scale and large scale. Because of the range of things that Big Scale Companies create on a larger scale, many people are familiar with them. Small Scale Industries, on the other hand, have grown to be a powerful segment of the industry. Let’s take a closer look at the Small Scale Industries.

What Are Small Scale Industries?

Ajay goes to a tiny bakery shop beside his college every day to buy his favourite cakes. Reema often visits a small beauty salon at the corner of the street. Raj is crazy about pickles and runs to Shyam’s uncle’s shop to buy them every month. But what do Ajay, Reema, and Raj have in common? The things they are buying are barely related to each other or are they? Bakery, beauty salons, or even pickles sold at some general store all belong to the same category — Small Scale Industries. But what does the term Small Scale Industries mean? 

Small-scale industries are those that operate on a micro-scale in terms of manufacturing, services, or production. Simply said, you’ll be processing things with the assistance of a small number of people and machinery.

Small Scale Enterprises invest a small amount of money in machinery, plant, or equipment, and their annual turnover should not exceed Rs. 50 crores. Small industries are important in emerging markets like India since they contribute to strengthen the economy.

Small Size Industries account for around 6.11% of manufacturing GDP and 24.63% of services GDP, according to the Confederation of Indian Industry. Not only that, but Small Scale Industries are responsible for employing over 120 million people, including a sizable rural population, and accounting for 45% of India’s total exports. Small Scale Industries, in other words, are one of the most important manufacturing groups for economic growth.

Recommended: Large Scale Industries

Types of Small Scale Industries

Small-scale industries are broken down into three categories:

1. Manufacturing Industries

Small units in a given industry are recognized for producing raw materials or completed commodities that can be used by other processing sectors or for personal use. Due to their tiny size, such businesses are frequently owned by individuals. The papad-making business, for example, is a small-scale manufacturing business that is usually operated by a single person who manufactures the papad and sells it in the marketplace to make money.

2. Ancillary Industries

Large-scale manufacturers in India are mostly recognized for creating finished goods for market sale. Yet, most large-scale businesses must get raw materials in order to complete the manufacturing process. Auxiliary industries are recognized for producing raw materials or parts of machinery that can be employed in the production of final goods. Auto Ancillary companies, for example, are known for creating and marketing vehicle intermediate parts that can be used by the auto industries to make cars.

3. Services Industries 

Businesses that provide after-sale services are known as services industries. This could involve product maintenance or mending any damaged goods that could be reused later. For example, after purchasing a car and driving it for a year, you discover that the engine has a problem. So you take it to the mechanic and have it changed with a new one.

Additional small scale industries, in addition to the most prominent classification of sectors mentioned above, include:

  • Cottage Businesses These are decentralized small-scale industries that rely on private resources to operate. Rather than operating out of a private facility, such businesses are frequently started at home.
  • Industries that export These are export units, which are small-scale businesses. Typically, a company is classified as an export unit if its total exports surpass 50% of its production process. You will be eligible for various government grants and bonuses if you are classified as an export unit.
  • Village industries are those that are based in rural areas and employ rural workers. These industries are typically found in the unorganized economy.

Examples of Small Scale Industries

1. Agarbatti Industry

The incense industry in India is one of the world’s largest village industries. India consumes 1,490 tons of agarbatti each day, according to the Khadi & Village Industries Commission (KVIC). The Covid-19 has recently affected several enterprises in rural areas, including the incense industry. Notwithstanding the disruptions caused by the pandemic, demand has remained stable. By August, when the unlocking began, agarbatti output had rebounded as well, and the market has since recovered tremendously.

Traditionally, incense production has remained at INR 7,000 crores, but it is predicted to rise to INR 7,500 to 8,000 crores in the near future. India is known for its incense market, and its agarbatti is exported to 150 nations, including the United States, Nigeria, the United Kingdom, and Malaysia. To today, India’s incense sector employs 4 lakh people, with women accounting for 80% of the workforce. Cycle Pure Agarbatti, Moksh Agarbatti, Zed Back Agarbatti, and others are some of the most well-known Agarbatti brands in India.

2. Toy Manufacturing Industry

Toys are one of the well-known domestic industries in India. 90% of the toys market is unorganized consisting of at least 4,000 manufacturers across the country. Most of these toy manufacturers are located in the bigger states such as Maharashtra, Karnataka, New Delhi, Tamil Nadu and spread across the central Indian region in small clusters. The domestic toy market is estimated to grow by approximately 10-15% in the upcoming years. 

PM Modi had addressed the nation in February 2021 where he called forward the founders of the start-ups to explore the toy industry. The Government of India has also recently given their approval for the development of 8 toy manufacturing clusters with an expenditure of INR 2,300 Crores. One of the clusters has already been a work in progress in the region of Koppal, Karnataka. Koppal Toy Cluster is being developed together with the partnership of Aequs Infra and it will spread across 400 acres of land. This has the potential to create approximately 40,000 jobs in the next 5 years. Famous toy companies in India include popular names such as Funskool, Fisher-Price, Hot Wheels, etc. 

3. Spice Industry

India produces 75 of the 109 spice varieties produced worldwide, making it one of the world’s largest consumers and exporters of spices. Despite the fact that the Indian spice market is valued roughly INR 75,000 crores, it is highly disorganized. Branded firms account for 15% of the spice market. Yet, in recent years, there has been an upsurge in demand for packaged, ready-to-use spices sold on store shelves. As a result, demand for unbranded spices has decreased in urban areas. Homemade spices are still popular in rural areas.

Turmeric, chili, and ginger are all produced in India. Rajasthan is the biggest spice producer, with about 9,80,000 metric tons produced in 2019-20. Gujarat is second with over 7,60,500 metric tons produced, followed by Andhra Pradesh with over 7,47,450 metric tons. The most well-known players in the spice industry include Everest, MDH, Badshah, Catch, and others.

Small Scale Business Ideas

A small-scale business is one that is usually run from one’s home. It could be a small business with a few employees or a sole proprietorship. A micro-business is another term for it. Many people supplement their income by establishing such a business, which can normally be run successfully on a part-time basis.

  • Bakery
  • Electric Charging Point
  • E-commerce Seller
  • Handmade artifacts 
  • Fashion Tailor
  • Shop
  • Cafe
  • Book seller
  • Coaching Class
  • Affiliate Marketing
  • Real Estate Agent

Advantages & Disadvantages Small Scale Industries

Advantages of A Small Scale Industry Disadvantages of A Small Scale Industry
Small Capital Requirement Higher Costs
Simple Management Difficulty to Acquire Credit
Direct Customer Relations Poor Quality of Goods
Independent Operations Pressure from Competition
Demand based Production Lesser Use of Machinery

Advantages of Small Scale Industries

  • Small Capital Requirement

Small-scale industries are recognized for executing their operations on a shoestring budget. The SSI’s major advantage is that you can start your own firm with a small amount of money before moving on to large-scale production. Many firms experience difficulties starting off because of a lack of finances, which may not be a major issue for small businesses.

  • Simple Management

Any huge industry faces the same dilemma, which ultimately leads to its demise: resource management. Small businesses, on the other hand, have an easier time managing their resources because the owners have direct contact with their personnel. Miscommunication is unlikely, and owners can readily resolve employee issues by communicating directly with them.

  • Direct Customer Relations

Wouldn’t it be great if a consumer could solve their problem quickly with the help of the business owner? That is precisely what small firms may achieve by building a direct relationship and communication link with their clients, which can aid in the faster resolution of customer complaints.

  • Independent Operations

Small businesses allow its owners to work on their own schedules without having to answer to anyone else in the company. This sense of autonomy allows the business owners to work more efficiently and motivate their personnel.

  • Demand-Based Production

When it comes to small-scale organizations, demand is relatively limited. This results in micro-scale production, which is both cost-effective and free of the drawbacks of large-scale production.

Disadvantages of Small Scale Industries

  • Higher Costs

Small enterprises in India are frequently at a disadvantage due to rising raw material, production, and labor prices, which most small businesses cannot afford. Furthermore, if there is a private facility, the owner must incur additional expenditures based on rent, resulting in an increase in overall overhead costs.

  • Credit Acquisition Difficulties

Small businesses have lesser capital requirements, but when they require additional funds to grow their operations, the owner must obtain loans. Yet, due to business uncertainties, financial facilities for such enterprises may be limited.

  • Bad Product Quality

Small-business goods aren’t always standardized, and they might not be up to par in terms of quality. Bad product quality can cause businesses to lose their most loyal clients.

  • Pressure from Competition

Competition can be harsh, especially if your opponent is offering a superior product at a lower price. Furthermore, huge firms frequently develop brand recognition, allowing them to readily infiltrate the market. Smaller businesses who are trying to carve out a niche in the market may find it difficult to survive.

  • Machine usage is reduced.

Less capital makes it possible for the owner to purchase modest machinery that can be run with human aid. Modern machines, on the other hand, can produce at a far faster rate, saving you time and resources in the manufacturing process. Small business owners, on the other hand, cannot afford such expensive machines. Due to the increased use of human labor, the cost per unit of output may likewise remain higher.

Summary – Small Scale Industries

Small Scale Business Minimum Capital Required (INR)
Handmade Candles 20,000
Pickles  10,000
Papad 30,000
Noodles 40,000
Agarbatti 50,000
Handmade Chocolates  50,000
Homemade Bakery Items 1,00,000
Coconut Oil 1,00,000
Organic Soap 1,50,000
Paper Making 2,00,000
Paper Bag Making  5,00,000
Furniture Making 5,00,000

Final Thoughts

Throughout diverse industries, small scale industries are gradually changing from an unorganized to an organized part. The revenue contribution of Small Size Industry to GDP has been steadily increasing. Most small scale industries employ rural workers, which helps to boost employment levels while also assisting the Indian economy to thrive and remain strong in the coming years.

Frequently Asked Questions

Define the characteristics of Small Scale Industries.

Localized operations, labor-intensive, individual ownership, management flexibility, and so on are some of the characteristics.

How to Start a Small Scale Business?

Do market research first, then shortlist the business category, obtain the necessary resources, and then launch the company.

What kind of people are called ‘Small Scale Manufacturers’?

Bakeries, salons, picture studios, and other small businesses can be managed by anyone.

Do I need to register my small scale business?

Certainly, if you are making money from it, you must register your business with the government.

Can I get funding for my small scale business?

Yes. But first, make sure your firm is working properly and that there is room for expansion. Afterwards you can approach venture capitalists and other investment businesses.

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