Role of Small-Scale Industries in a Developing Economy

The case for the development of small-scale industries is particularly strong in under-developed but developing countries
like India. These small-scale industries satisfy many of the investment criteria that one often prescribes for the planned
development of the country
Labour-intensive:
Firstly, small-scale industries are labour-intensive, i.e., labour-investment ratio in their case is quite high. A given amount
of capital invested in small-scale industrial undertakings is likely to provide more employment, at least in the short run,
than the same amount of capital invested in large-scale undertakings. This is a very important matter for our country
where millions of people are either unemployed or under-employed. Further, the encouragement of small-scale industry
would serve to counteract the seasonal unemployment in agriculture and thus to utilise labour which might otherwise go
to waste.
Capital-light:
Secondly, small-scale industries are capital-light, i.e., they need relatively smaller amount of capital than that required by l
large-scale industries, since the capital-output ratio is much smaller in the case of the former. Thus, one of the great
advantages of small-scale industries is that they make possible economies in the use of capital. Capital is already scarce in
an under-developed country like India. C
Capital Formation:
Thirdly, besides making possible economies in the use of like existing stock of capital, small-scale industry may call into
being capital that would not otherwise have come into existence. The spreading of industries over the countryside would
encourage the habits of thrift and investment in the rural areas. Moreover, the enterprising Small manufacturer has to
scrape together capital where he can find it. He often manages to get it from relatives and friends. This capital probably
would never have come into existence as productive capital, had it not been for the small enterpriser.
Skill-light:
Fourthly, the peculiar attraction of small-scale industries lies in their being skill-light. A large-scale industry calls for a
great deal of management and supervising skill-foremen, engineers, accountants, and so on. Like capital, these skills are
also in very short supply in our country, and it is important to economies as much as possible in their use. Small-scale
industry provides a way of doing this and, at the same time, provides industrial experience and serves as a training ground
for a large number of small-scale managers. In India, with a long tradition of highly artistic products of cottage industry,
there exists a considerable ‘fund’ of local and traditional skill. Small industry may be better able than large industry to
take advantage of these existing traditional skills with minor adaptations.
Import-light:
Fifthly, small-scale industries are import-light, i.e., they use a relatively low proportion of imported equipment and
materials as compared with the total amount used in them. A low-import intensity in the capital structure of the small-
scale industries reduces the need
Decentralisation:
Seventhly, the development of small-scale industries will bring about dispersion or Decentralisation of
industries, and will thus promote the object of balanced regional development. A major drawback in the industrial
structure of an under-developed country is that regional distribution of industries is exceedingly uneven. On the one hand,
there is a disproportionate growth of large-scale industries in a few areas, and on the other, a virtual absence of such
industries in the greater part of the country. The development of small-scale industries will tend to correct this uneven
distribution of industries in the country.
Equal Distribution of Income and Wealth
Eighthly, small-scale and cottage industries have the additional advantage that, with, decentralized industries,
they secure a more, even distribution of income and wealth. The development of large-scale industries tends to
concentrate large incomes and wealth in a few hands. This is undesirable from the social point view, because it results in
the exploitation of man by man. If also creates vested interests which put obstacles in the way of the economy marching
towards its got' of socialistic pattern of society.
Overcoming Territorial Immobility:
Lastly, by carrying the job to the worker, small-scale industries can overcome the difficulties of territorial
immobility. Moreover, unlike large industries, small-scale industries do not create problems of slum housing, health and
sanitation, etc., and the attendant disease, misery and squalor. Thus, there is a strong case for encouraging small-scale
industries in under-developed countries like India.