Contribution of Small Scale Industry in Indian Economy

Contribution of Small Scale Industry in Indian Economy

Small scale industries play a crucial role by promoting balanced development of industries across different regions of the economy. They are adept in distributing national income in an equitable and efficient manner. With government support, the industries enhance economic growth. Therefore, the development of the industries is strong in countries such as India as they satisfy investment criteria hence, the contribution of small scale industries in Indian economy.

It is good to note that India is a vast growing economy. The country has a population of more than one billion people. Nearly 70 percent of the people in the country depend on agriculture for sustenance while 40 percent live below poverty line. India also depends on a balanced economy in agriculture and other industries. Finance and capital from the government has been scarce but the government has encouraged different alternatives in agriculture and small scale industries.

Major contribution of small scale industry in Indian economy


Small scale industries are labor intensive. A large amount of capital invested in small scale industries in India is more likely to offer more employment opportunities in the short run, compared to large scale undertakings. It is therefore an essential part of India because millions of people are underemployed and others are not employed. Therefore, small scale industries serve to counteract seasonal unemployment in agriculture as it utilizes labor that could otherwise go to waste.

Additionally, entrepreneurs in small scale industries in India are not required to get a state license to establish a company in any part of the region. Small scale industries have therefore been the most ideal way of sustenance as it contributes 40 percent of the country’s gross value output. The small scale sector has undergone immense changes over the past years. As a result, the number of reserved units or items has increased tremendously across the country.

Capital light

Small scale industries are capital light and need small amount of capital. They utilize capital that is already scarce in the country. This also leads to capital formation or investment habits in rural areas of India and in the long run, promoting India’s economic growth.

Small scale industries are skill and import light

Small industries are skill and import light. They offer extra industrial skills and experience that serve as a training base for small scale managers. India has long and highly artistic cottage industry products. This means that there is a considerable amount of traditional and local skill. Therefore, the country benefits from quality traditional skills that do not require minor adaptations.

The industries also employ the use of low proportion imported equipment and materials compared to the amount used in them. Low import intensity on small scale industries reducing their need for foreign exchange and foreign capital. This removes the difficulties India faces in terms of balance of payments.

Contribution of small scale industry in Indian economy in terms of investment

Small scale industries in India are a quick investment option. This means that those that are in time between flow of consumable products and execution of a project is relatively short. India being a developing economy and with a high inflationary potential benefits from the companies because it needs short type investment companies.

Additionally, MSME in India are co-efficient. They have a high fruition rate in terms of planned investment options and output. These also have a short fruition lag making it easy for the industry to enhance economic growth in India.

Small scale industries lead to decentralization

Small scale industries in India promote economic growth because they bring about decentralization. They promote the object and idea of creating a balanced regional development. It is good to note that this is an essential part of any developing economy bearing in mind that, unequal regional distribution of resources and industries cripple economic development.

The contribution of small scale industries in India has also created an even mode of income and wealth distribution. This is an additional advantage from these industries compared to what larger industries offer.

Last but not least, small scale industries help to enhance economic growth in India by enabling the country to overcome territorial immobility.

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