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Small Scale and Cottage Industries: Role and Problems | Cottage Industry UPSC
By BYJU'S Exam Prep
Updated on: November 14th, 2023

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Small Scale and Cottage Industries are part of the MSMEs. Small-scale industries are those
where production, manufacturing, and service delivery are carried out on a modest scale. Cottage
Industries are typically extremely small businesses that are founded in homes or other modest
structures. While family labor is used in the cottage industry, outside labor is used in small-scale
industries.

Small Scale Industries and Cottage Industries are the backbones of the MSME. Through the
article, we will be covering the basic aspects of both industries, along with their role, importance
and problems faced. We will also be discussing the government initiatives taken up to benefit the
small scale and cottage industries.

Table of content

1. Cottage Industry

2. Importance of Cottage Industries

3. Types of Cottage Industries

4. Small Scale Industries

5. Characteristics of Small Scale Industries

6. Role of Small Scale Industries in India

7. Contribution of Small Scale Industries

8. Problems Faced by Small Scale and Cottage Industries

9. Government Initiatives for Small Scale and Cottage Industries

10. Cottage Industry UPSC

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Cottage Industry
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Household, rural, and traditional industries are other names for cottage industries or cottage
manufacturing. The artists, with the help of their families and part-time workers, make items at
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home using basic tools and raw materials. The items are then used at home and sold in the
nearby village. They are also raided with other goods as a barter system.

Cottage Industries are typically extremely small businesses that are founded in homes or other
modest structures. A governmental institution called the Khadi and Village Industry Commission
(KVIC) supports cottage industries as well as village industries.

All family members must take part in the development of the cottage industries. Capital subsidies
are the most common sort of government assistance given to this sector of the economy. Another
choice is self-help groups. In India, small-scale and cottage industries produce about 40% of the
nation’s overall industrial output.

Importance of Cottage Industries

A unique position for the cottage industry exists in India because of the country’s extremely
diverse socioeconomic and geographic structure. These fit very well with Gandhi’s rural
development philosophy. The Government of India has given the cottage sector significant
incentives to shine from the plan after plan because of the unique position it occupies in India’s
development landscape.

However, this industry has been experiencing serious risks due to emancipation, globalization, and
privatization since 1990. This is because of economies of scale brought about by larger
companies producing the same items according to the current paradigm’s tenet that the stronger
will survive.

Increased employment opportunities provided by cottage industries ultimately reduce

poverty and inequalities.
This economic sector is one of the most crucial for balancing regional rural economic
growth and development.
Since women play a significant part in these businesses at the managerial and working
levels, the cottage industry is also regarded as vital for women’s empowerment.
In contrast to large units, these industries (handicrafts) are environmentally friendly, energy-
efficient, and have low emission levels.
Cottage industries make good use of local talent. Due to their rarity, several of these old
skills gain prominence.
Little cash is needed for the cottage industry.
Because most cottage industries are found in tiny towns and villages, there is less strain on
agriculture due to population growth. So they aid in diversifying the rural economy.
If correctly utilized, these industries have strong export potential. These sectors’ historic,
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Types of Cottage Industries

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India is renowned and well-known for its diverse culture, traditional cottage industries’ handicrafts,
and a large variety of food products, among other things. The types of cottage industries present
in India are:

Carpet Weaving Cottage Industry

During the Mughal era, carpet weaving was first brought to India.
In spite of the fact that the carpet industry is widespread throughout the nation, it is largely
concentrated in Kashmir, Rajasthan, Punjab, Uttar Pradesh, Andhra Pradesh, and Punjab.
The durries and coir carpets are equally renowned for their exceptional quality and texture as
the Kashmiri carpet.
The Carpet Export Council was also founded by the Indian government to promote knotted
rugs and other types of floor coverings from all around the nation.

Cotton Weaving Cottage Industry

Cotton weaving is a significant cottage industry in India.

Since cotton clothing is widely worn throughout the nation, the knowledge is age-old.
Clothing made of cotton is renowned for its traditional style, vibrant colour, and designs
made by expert weavers using handlooms.
Gujarat, Tamil Nadu, and Maharashtra are the three states that produce the most cotton.

Metal Works Cottage Industry

Metal has long been used in India to make figurines, jewelry, utensils, and other objects.
India’s metal handicrafts are well-liked worldwide and have a major economic impact on the
nation.
Metal handicrafts are created using hand-operated tools rather than sophisticated
machinery.

Silk Weaving Cottage Industry

Another well-known cottage industry in India is silk weaving.

India produces and exports a significant amount of silk, both domestically and outside.
Mulberry, Tassore, Muga, and Eri silks are produced in our count.
Karnataka produces the most silk, making up over 70% of the whole silk-weaving business.

Small Scale Industries

Small Scale industries are those in which production, manufacturing, and servicing are carried out
on a modest scale. The overall investment in such industries does not exceed one crore, and it is
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typically made as a one-time investment in plant and machinery.

Smaller machines and extremely constrained people are used in small-scale enterprises to
produce items and provide services. Small scale industries, also known as SSIs, are considered
the backbone of an economy, which is crucial for a nation like India. It greatly aids in providing
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work possibilities for the country’s inhabitants because it is a labor-intensive business. Some
examples of small scale industries include:

Pickle manufacturing industries

Incense stick manufacturing industries
Paper plate manufacturing industries
Water bottles manufacturing industries
Cosmetic salons
School supplies
Bakeries
Small toys manufacturing industries
Industries for paper bags
Leather belt manufacturing industries

Characteristics of Small Scale Industries

Small-scale industries are characterized by their relatively small size and limited investment
capital. These industries play a vital role in employment generation, promoting entrepreneurship,
and fostering local economic development. The characteristics of Small Scale Industries in India
are as follows:

Small scale industries often only have one owner, which implies they are either partnerships
or sole proprietorships.
Owners of Small scale industries are responsible for managing them. Thus, they actively
participate in the day-to-day operations of the company.
Small scale industries operate in a constrained space, enabling them to satisfy local and
regional needs.
Small scale industries utilize locally sourced, easily accessible resources, allowing the
economy to make the most use of existing natural resources with the least amount of
waste.
Due to their high labor requirements, Small scale industries rarely use technology.
Unlike huge businesses, small scale industries are flexible and adaptable to a changing
business environment.

Role of Small Scale Industries in India

Small-scale industries have a significant role in India’s economy. They contribute to employment
generation, especially in rural and semi-urban areas, and promote inclusive growth by providing
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These industries also contribute to
exports, manufacturing, and the overall industrial development of the country.

They play a crucial role in creating employment in an economy because they are the main
sources of employment for those who live in rural areas.
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 Small scale industries in India contribute significantly to the nation’s economy because they
produce close to 40% of all goods and services.
Small-scale businesses support the Make in India movement, which increases consumer
demand for locally produced goods.
Small scale industries supply the majority of the export materials to Indian businesses.
According to estimates, these industries create almost 50% of all the material shipped.

Contribution of Small Scale Industries

Small-scale industries make a significant contribution to the Indian economy. They play a crucial
role in employment generation, particularly for the labor-intensive workforce. These industries also
contribute to the overall industrial output, promote balanced regional development, and foster
innovation and entrepreneurship The following lists the main contributions made by small-scale
industries to economic development:

According to the 73rd phase of the National Sample Survey (NSS), there are 633.88 lakh
unincorporated MSMEs that are not in the agriculture sector operating across the nation in
2015–16. The MSME sector has been adding 11.10 crore jobs in terms of employment.
Small-scale industries play a crucial role in eliminating income disparities.
The surplus of these sectors is distributed among many individuals, and capital is widely
dispersed in tiny amounts.
Small-scale industries help to disperse industries throughout regions and balance out
regional imbalances.
Small-scale industries utilise local assets like capital and entrepreneurial skills that would
have gone unused in the absence of such industries, among other things.

Problems Faced by Small Scale and Cottage Industries

Small scale and cottage industries in India face several challenges that hinder their growth and
development. These include limited access to finance and credit facilities, lack of infrastructure
support, and inadequate technological advancements. The major problems faced by Small Scale
and Cottage industries are listed below:

Lack of timely and sufficient credit availability.

inadequate management
Infrastructure gap
Technological staleness
Limited raw material availability
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Competition from big businesses and imports.

Excessive municipal tax burden
Prevalent illness

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Government Initiatives for Small Scale and Cottage Industries

The following are the primary steps taken by the Indian government to boost the Small Scale and
Cottage Industries:

For Small Scale Industries

Various organizational measures, such as Industrial Estates, District Industries Centre (DIC),
National Small Industries Corporation (NSIC), etc. have been set up at various locations.
In financial measures, the Government of India has set up National Equity Fund (NEF), Single
Window Scheme (SWS), Small Industries Development Fund (SIDF) and Small Industries
Development Bank of India (SIDBI).
Small businesses with a revenue of up to Rs 1 crore are completely exempt from excise
duty. Products produced in the small-scale sector are given price and purchasing
advantages in government procurement programs.
When specific types of raw materials and components used by SSIs are imported, they are
subject to the concessional rate of customs duties.
As far as technical assistance is concerned, the government has set up the technological
upgradation and modernization models such as Small-scale Industries Development
Organization (SIDO), Technology Development and Modernization Fund (TDMF) and Council
for Advancement of Rural Technology (CART).
For small scale industries, the government has also launched a Reservation of Items
scheme. By shielding them from the competition with large-scale units, the policy to reserve
specific items for the small-scale sector seeks to advance SSIs.

For Cottage Industries

A number of organizations have been established by the Union Government to support small
companies and rural communities. They include the Central Silk Board, the All India
Handicrafts Board, the AH India-Handloom Board, and the Khadi and Village Industries
Commission.
Credit is available to these industries through a number of different institutions. Small-scale
businesses are given precedence when it comes to receiving institutional finance.
There are now industrial cooperatives, industrial estates, and rural industrial initiatives.
To encourage the small-scale manufacturing sector, the Central Government has designated
807 products for exclusive manufacture.
District Industries Centers are being created at the district level to house all the support and
services needed for small and village businesses.

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Cottage and Small Scale industries are an essential part of the MSME sector of the country. With
the Make in India initiative, these industries have been in the news. It is important for a UPSC

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candidate to know about these industries. Small Scale and Cottage Industries are important
sectors that contribute to economic growth and employment generation.

The topic of Small Scale and Cottage Industries falls under the section of “Indian Economy” in the
UPSC Syllabus. It is an essential area of study for candidates preparing for UPSC exam as it
encompasses various aspects related to the development, challenges, and policies pertaining to
these industries.

Cottage Industry UPSC Questions

Candidates should solve questions related to Small Scale and Cottage Industries to gain a better
understanding of the key concepts and fundamentals. These questions will help candidates
assess their performance and gain valuable insights into the topic.

Question: Which is perhaps the most notable cottage industry in Birbhum? (A) Kutir Mela, (B)
Ekanto Aapon, (C) Amar Kutir, (D) None of the above

Answer: (C) Amar Kutir

Question: Consider the following: (1) Agriculture, (2) Small-scale industries, (3) Cottage and
village industries, (4) Urban Handicraft Industry

National Bank for Agriculture and Rural Development (NABARD) was established on 12 July 1982,
for providing credit to which among the above? (A) 1 only, (B) 1 and 2 only, (C) 1, 2, and 3 only, (D)
1, 2, 3, and 4

Answer: (C) 1, 2, and 3 only

Questions for UPSC Mains: Discuss the significance of small-scale and cottage industries in
promoting rural development and employment generation in India. Highlight the challenges faced
by these industries and suggest measures to enhance their competitiveness and sustainability.

Questions for UPSC Mains: Analyze the challenges faced by small-scale and cottage industries in
India and their impact on employment generation and rural development. Suggest measures to
address these challenges and enhance the competitiveness of these industries in the global
market.

UPSC Notes

Galwan Valley Conflict India Sri Lanka Relations

August Offer 1940 Second Carnatic War

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Godavari River Important Battles in Indian History

Subordinate Court Cop26 Glasgow

Plasmid and its type Third and Fourth Anglo Mysore War
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