CHAPTER 6: SMALL SCALE AND COTTAGE INDUSTRIES

CONTENT
• MEANING
• CHARACTERISTICS AND CLASSIFICATION
• IMPORTANCE OF SSI IN INDIAN ECONOMY
• PROBLEMS FACED BY SSIs
• PROMOTIONAL MEASURES FOR SSIs
• THE INDUSTRIAL POLICY 1991 AND SSIs

1. MEANING
• The industrial units can be classified as small scale, medium scale and large
scale.
• The small scale sector can be divided into: small scale Industries and Cottage
industries
• “A small scale industries are located in urban centers and produce goods with
partially or wholly mechanized equipment employing outside labour, small in
size, having little capital resources and a small labour force”
• “Cottage Industries are mainly rural in character and are generally associated
with agriculture involving operations mostly by hands and are carried on in
the home either as a whole time or as a part time occupation, primarily with
the help of members of the family”
• Small scale sector is divided into: a) Traditional small scale industries, b)
Modern small scale industries
I. Traditional include 2 types of good: - metal work, ivory and wood
carving and carpet making which needs specialized skills; leather
products, silk material, hand woven textile and pottery which are
goods of common use.
II. Modern small scale industries include industries that produce cycle
parts, sewing machine, razor blades ,electrical goods, radio sets etc.

DIFFERENCE BETWEEN SMALL SCALE AND COTTAGE

INDUSTRY
Small Scale Industries Cottage Industries
Found in urban areas Found in rural areas
Labour appointed from outside Family members of owners are workers
Modern tools are used Work is done manually
Eg. Sewing machine, cycle parts, etc Eg.Basket making,handloom weaving, etc.,
2. CLASSIFICATION OF INDUSTRIES IN THE SMALL-SCALE SECTOR:
On the basis of capital invested small scale sector is divided into:
• Small-scale industries
• Ancillary industries
• Tiny units

3. IMPORTANCE OF SMALL SCALE INDUSTRIES IN INDIA

1. Employment:
• The cottage and small scale industries have high employment capacity.
• They provide approximately 8-10 times more employment than large scale
industries.
• Within period from 1995-2004 small scale sector created 82.57 lakh
employment opportunities
2. More output with less investment:
• These industries being labour intensive require less capital
• Thus more production can be obtained with less investment
• These industries can easily adapt to changing trends as they are small
in size
• The average growth rate of these industries between 1994-2004 year
has been 9.62%
3. Export Earnings:
• The product of these industries like handicrafts, embroidery, handloom, ivory
product etc are in great demand in the foreign countries.
• These industries account for 30% of our export earning by appropriate policy
measures
• This share can be further increased
• Export earning from small scale industries increased from Rs.29068 crore-
Rs. 86,013 crore between years 1994-2003

4. Labor Intensive:
• These require less capital and more labour to produce a given output.
• These are suitable for developing countries like India where there is shortage
of capital on one hand and abundance of labor on the other

5. Low Gestation Period:

• The small units can be set up within a short period of time.
• They can increase the production flow of consumer goods immediately
because their method of production is simple and less time consuming.
• They can meet shortage of essential goods and commodities

6. Decentralized Economy and More Even Distribution of Income:

• The ownership of these economy is distributed in a broad-based way which
help to achieve decentralized economy.
 • As it is labor intensive, it provides employment to a large number of people
and helps in more even distribution of income.
7. Balanced Regional Growth:
• These can be set up indifferent parts of the country as they use locally
available raw materials, labor, skill and capital.
• Thus they bring about balanced regional development.
8. Saving in social Cost:
• These industries discourage migration from rural areas to urban areas.
• This result in saving of social cost in terms of creating infrastructure like
roads, power supply, sanitation, health care, educational facilities etc., in the
urban areas is reduced.
9. Use of locally available inputs:
• These make use of locally available man power and physical resources such as
land, forest, mineral resources and also products of agriculture and animal
waste.
10. Ancillary Industries:
• The small scale industries act as complementary to large scale industries
• Many of the product required by large scale industries can easily be produced
by small units.
• Eg. Bolts and nuts, carriers for bicycle, cotton bobbins, starch etc.