Syllabus
GS Paper III – Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.
Context
Every year on August 30, India celebrates Small Industry Day to acknowledge the significant contributions of small businesses and industries to the nation’s economy.
Small Scale Industries
Introduction
Every year on August 30, India celebrates Small Industry Day to acknowledge the significant contributions of small businesses and industries to the nation’s economy. This day highlights the vital role that small enterprises play in fostering economic growth, generating employment, and promoting innovation. By recognizing the efforts and achievements of these businesses, Small Industry Day aims to encourage entrepreneurship and support the development of a robust and diverse industrial sector. It serves as a reminder of the importance of nurturing small industries to ensure sustainable economic progress and inclusive growth for the country.
“The salvation of India lies in cottage and small scale industries”. – Mahatma Gandhi
Small Scale Industries
- The terms Small Scale Industry (SSI) and Micro, Small, and Medium Enterprise (MSME) are frequently used interchangeably.
- MSME Development Act of 2006: This Act was established to foster the growth, expansion, and competitiveness of MSMEs or SSIs.
- Industry Classification: Industries are categorized based on investment and annual turnover as follows:
- Micro:
- Investment: Up to Rs. 1 crore
- Annual Turnover: Up to Rs. 5 crore
- Small:
- Investment: Up to Rs. 10 crore
- Annual Turnover: Up to Rs. 50 crore
- Medium:
- Investment: Up to Rs. 50 crore
- Annual Turnover: Up to Rs. 250 crore
- Micro:
- State Government Responsibility: The primary responsibility for the development and promotion of these small industries lies with the State Governments.
- Village and Small Industry (VSI): This term refers to unorganised traditional sectors and small-scale industries. The VSI sector comprises seven sub-sectors:
- Handicrafts
- Handlooms
- Khadi and Village Industries
- Coir
- Sericulture
- Power Looms
- Small Scale Industries
Characteristics of Small Scale Industries
- Minimal Financial Outlay: Small-scale industries generally require low capital investment, making them accessible to a wide range of entrepreneurs.
- Compact Workforce: These industries typically employ a limited number of workers, often involving family members or a small, dedicated team.
- Simplified Management Structure: The organizational framework is usually straightforward and less hierarchical, allowing for quick and efficient decision-making.
- Innovative Drive: Small-scale industries are often characterized by a strong entrepreneurial spirit, with owners actively engaged in daily operations and innovation.
- Adoption of Technology: Despite their size, many small-scale industries are keen on integrating new technologies to enhance productivity and competitiveness.
- Agility and Responsiveness: These industries are known for their flexibility and ability to adapt swiftly to market changes and customer demands.
- Regional Focus: Small-scale industries often operate within local or regional markets, catering to the specific needs of their communities.
- Specialized Offerings: They frequently focus on niche markets, providing unique or specialized products and services that larger industries might overlook.
- Local Procurement: These industries tend to source raw materials locally, supporting local suppliers and reducing transportation costs.
Importance of Small Scale Industries
- Key Economic Component: Small industries are a vital part of the nation’s economic framework.
- Broad Industry Support: They encompass a wide array of sectors, including modern small-scale enterprises, unorganised traditional industries, and organised large and medium-sized businesses.
- Predominance in Industrial Units: Small-scale industries (SSIs) constitute approximately 95% of all industrial units.
- Encouraging Entrepreneurship: The innovative business practices of small industries have significantly contributed to the growth of entrepreneurial activities.
- Employment Generation: These industries create substantial employment opportunities at a much lower capital cost compared to large industries. According to the Ministry of Statistics and Programme Implementation (MoSPI), they employ about 175 lakh people.
- Market Expansion: Small industries promote market growth by offering a diverse range of goods and services that meet both local and international consumer demands.
- Rural and Underdeveloped Area Development: They play a key role in the industrialisation of rural and underdeveloped regions, reducing regional disparities and ensuring a more equitable distribution of wealth and income across the country.
- Economic Growth Enhancement: Currently, small-scale industries contribute nearly 40% of the gross industrial value added to the Indian economy.
Initiatives taken to promote small scale industries
- Collateral-Free Credit Access: Banks and other financial institutions, including NBFCs, are to provide credit without collateral to support small industries.
- SFURTI Initiative: The Scheme of Fund for Regeneration of Traditional Industries (SFURTI), launched in 2005, aims to create sustainable and competitive employment opportunities for traditional industries and artisans by organizing them into clusters.
- MSME Champions Scheme: Formulated by the Standing Finance Committee (SFC), this scheme merges all six components of the former Technology Upgradation Scheme (TUS) and spans from 2021-22 to 2025-26. It promotes MSME competitiveness through the Credit Linked Capital Subsidy and TUS, comprising three parts:
- MSME-Sustainable (ZED) Certification Scheme
- MSME-Competitive (Lean) Scheme
- MSME-Innovative (for Incubation, IPR, and Design) Scheme
- Greening MSME: Launched by the Small Industries Development Bank of India (SIDBI), this initiative provides financial assistance up to INR 20 crores to MSMEs, enabling them to adopt energy-efficient and environmentally sustainable technologies.
- PMEGP: The Prime Minister’s Employment Generation Programme, implemented by the Khadi and Village Industries Commission (KVIC) since 2008, aims to generate employment by establishing new microbusinesses, projects, and self-employment ventures in both rural and urban areas.
- ASPIRE: The Scheme for Promotion of Innovation, Rural Industry & Entrepreneurship continues from 2021-2022 to 2025-2026. It seeks to reduce unemployment, generate jobs, and foster an entrepreneurial culture and innovation to enhance the competitiveness of the MSME sector.
- ESDP: The Entrepreneurship and Skill Development Programmes aim to encourage young people from diverse social backgrounds, including women, SC/ST, disabled individuals, ex-servicemen, and those below the poverty line (BPL), to consider careers in self-employment or entrepreneurship.
Challenges
- Financial Access Deficit: Indian MSMEs face a significant financing gap, with an estimated shortfall of $400 billion.
- Fragmented Structure: Due to their unorganised and small-scale nature, MSMEs are among the most vulnerable sectors in the economy. The COVID-19 lockdown led to the closure of millions of these enterprises due to reduced demand.
- Green Transition Challenges: MSMEs face greater policy and demand uncertainties during the green transition, often more negatively impacted than positively. Most lack the financial and technical resources to invest in new, sustainable practices.
- Regulatory Gaps: There is an absence of a strategic framework to help MSMEs manage the risks associated with transitioning from traditional methods to more eco-friendly processes.
Way forward
- Active Engagement: Encourage governments, business groups, civil society organisations, and others to actively participate in raising awareness, sharing best practices, and providing training and resources.
- Financial Incentives: Offer financial incentives such as tax breaks, subsidies, grants, and low-interest loans to motivate MSMEs to adopt sustainable practices or invest in sustainable technologies.
- Support from Larger Firms: Larger companies can assist MSMEs in implementing sustainable practices by offering training, technical assistance, and financing.
- Policy Evaluation: Assess environmental policies for their impact on MSMEs before implementation to ensure they are supportive rather than detrimental.
- Simple Compliance Encouragement: Promote simple compliance for SMEs by taxing negative externalities and providing subsidies or tax breaks for green expenditures.
- Adoption of Best Practices: Encourage the adoption of best practices such as low energy strategies, renewable energy use, waste management, women’s safety, and timely wage payment.
Conclusion
Small Industry Day, celebrated annually on August 30, underscores the vital role of small businesses and industries in driving India’s economic growth. This day serves as a reminder of the significant contributions these enterprises make in terms of employment generation, innovation, and regional development. By recognizing their efforts, the nation not only honors their achievements but also encourages further growth and sustainability within this crucial sector. Supporting small industries is essential for fostering a diverse and resilient economy, ensuring inclusive growth, and promoting entrepreneurial spirit across the country.
Reference: IE
Related PYQ
Faster economic growth requires increased share of the manufacturing sector in GDP, particularly of MSMEs. Comment on the present policies of the Government in this regard. [UPSC CSE – 2023 Mains]
Practice Question
Discuss the significance of Small Industry Day in India and analyze the role of small-scale industries in the Indian economy. Highlight the challenges faced by these industries and suggest measures to overcome them. [250 words]
Guidelines to Answer
- Introduction:
- Begin with a brief introduction about Small Industry Day, its purpose, and its significance in recognizing the contributions of small-scale industries to the Indian economy.
- Significance of Small Industry Day:
- Explain the importance of celebrating Small Industry Day.
- Mention how it acknowledges the contributions of small businesses and industries.
- Highlight the role of this day in promoting awareness and support for small-scale industries.
- Role of Small-Scale Industries in the Indian Economy:
- Discuss the economic contributions of small-scale industries, such as employment generation, fostering entrepreneurship, and regional development.
- Provide statistics or data to support your points (e.g., percentage of industrial units, employment figures, contribution to GDP).
- Challenges Faced by Small-Scale Industries:
- Identify and elaborate on the key challenges, such as lack of financial access, unorganised nature, impact of COVID-19, green transition challenges, and regulatory gaps.
- Use examples or case studies to illustrate these challenges.
- Measures to Overcome Challenges:
- Suggest practical measures to address the challenges faced by small-scale industries.
- Include recommendations such as providing financial incentives, offering training and technical assistance, evaluating policies for their impact on MSMEs, and encouraging the adoption of sustainable practices.
- Conclusion:
- Summarize the key points discussed.
- Reinforce the importance of supporting small-scale industries for sustainable economic growth and inclusive development.
- End with a forward-looking statement on the potential of small-scale industries in shaping India’s economic future.