Small Scale Industries - Meaning, Nature & Types

To define small scale industry effectively, it is imperative to first learn about the meaning of industry. The term industry refers to a group of companies that are related to each other, based on the primary business activities they undertake. 

Small scale industries, thus, refer to those partnerships, corporations or sole proprietorships that function on a lower scale, employing a smaller workforce, and generate less revenue than that by normal-sized industries or businesses.

Small scale enterprises can also refer to those businesses that apply for government support or avail preferential tax policies, depending on their area of operation.

Following is an elaboration on the types, characteristics and features of small scale industries, along with a few examples.

What are the Characteristics of Small Scale Industries?

In accordance with the small scale business meaning, such industries are characterised by the following features – 

  1. Ownership – 

Generally, such businesses are sole proprietorships or, in some cases, partnerships. It means that the ownership of the business rests on a single individual, in most cases.

  1. Labour Requirements –

Since capital investment in such industries is comparatively lower than that of the large-scale ones these mostly rely on manpower, to carry out production activities.

  1. Management – 

One of the most significant characteristics of SSI is that both the control and management of such business lie with owners. The owner, thus, participates actively in the day-to-day business conduction.

  1. Flexible – 

Since they operate on a smaller scale, these industries are more privy to sudden and unforeseen developments on the business front. They are more adaptable to changes in the business environment.

  1. Optimal Usage of Resources – 

Since they do not have excess resources at their disposal, small scale industries make optimal usage of the available resources without wastage.

  1. Operation Restrictions – 

Most small scale businesses are limited in their area of operation. As a result, they only operate either locally or regionally.

These are a few of the characteristics of small business that helps to effectively gauge its operation, administration and scope.  

Classification of Small Scale Industries

The classification of these industries can be based on several criteria. For instance, as per the goods and services produced, there are three types of small scale industries. These are – 

Type

Meaning 

Manufacturing industries

These are the industries engaged in the production of finished goods – either for processing or consumption. These types of businesses are mostly sole-proprietorships. Some of the examples of small business under this category are engineering industries, power looms, food processing, etc.

Service industries

This category includes repair shops and businesses engaged with maintenance.

Ancillary industries

Most MNCs or big companies manufacture finished goods. However, the parts used to manufacture these finished goods are supplied by ancillary industries. These types of small business can also include the ones that manufacture machines for medium-sized industries or MNCs.

Export units

A small scale business can be classified as an export unit if its total exports exceed 50% of its total manufactures. In this case, the business can enjoy grants and other export bonuses offered by the government.

Cottage industries

These industries are operated through private resources. They also involve small capital investment and utilisation of indigenous technology.

Village industries

The industries located in rural areas, not belonging to any organised sector, producing goods and services without the utilisation of power belong to this category.

 

Small scale enterprises can also be classified based on the amount of capital invested in their operation. In this scenario, these industries can be classified into the following – 

In the Manufacturing Sector – 

Type

Capital Invested in Plant and Machinery 

Micro industries

Invested amount does not surpass Rs.25 Lakh.

Small-scale industries

Investment sum over Rs.25 Lakh but is below Rs.1 Crore.

In the Service Sector – 

Type

Capital Investment in Equipment

Micro industries

Invested amount is not more than Rs.10 Lakh

Small-scale industries

Investment amount over Rs.10 Lakh but is below Rs.2 Crore.

 

Objectives and Features of Small Scale Industries

Small scale enterprises are formed to fulfil the following objectives – 

  • They create employment opportunities in developing countries like India. Since capital investment and technology usage is limited in this sector, it mostly relies on manpower, thus generating employment.

  • These industries help to boost the underdeveloped sectors of the economy – for example rural and cottage industries.

  • These industries also aid in addressing the problem of financial imbalance between the rural and urban sectors of the economy.

  • These industries often adopt the implementation of technology that can help to produce quality products at lower costs.

  • India’s export industry is largely dependent on these small scale enterprises. Almost half of the goods exported from India are either produced or manufactured in these industries.

Thus, small scale industries with less investment are a vital part that helps to strengthen the economy as a whole.

However, to be established, these industries also have to register themselves under the Ministry of Micro, Small and Medium Enterprises, through the Directorate of Industries under the State Government.

You can learn more about small business meaning by referring to our notes and study materials available online. You can also download Vedantu’s app to avail assistance for the preparation of your upcoming examination. Hurry and enrol today!

FAQ (Frequently Asked Questions)

1. What are Small Scale Industries?

Ans. Small scale industries refer to businesses whose operations involve less capital investment, lower labour engagement and limited integration of technology, as compared to the large scale ones. These industries produce goods and services at a smaller scale but form an integral part of the economy.

2. What is the Role of Small Scale Industries in the Employment Generation?

Ans. One of the primary features of small scale industries is that they are mostly reliant on manpower for their operation, due to the limited availability of technology and capital. Thus, they offer a higher scope of employment generation by undertaking labour-intensive activities in their operations.

3. Why are Small Scale Industries Flexible?

Ans. Since their operations have limited scope, it is easy for the industries to adapt to any unforeseen development in the business. As a result, they are much more flexible when it comes to adjusting to a changing business environment.