Role and Performance of Small-Scale and Cottage Industries of India | Economics Optional Notes for UPSC PDF Download

Expansion of Small-Scale Sector and Contribution to Industrial Output

The evolution of the small-scale sector's definition over time complicates a comprehensive study of its expansion. However, analyzing data from the Economic Survey 2001-02 reveals notable trends between 1993-94 and 2000-01.

• The number of small-scale units increased from 23.9 lakh in 1993-94 to 33.7 lakh in 2000-01, marking a substantial 41 percent growth over eight years.
• The output of small-scale units rose from Rs. 2,41,648 crore in 1993-94 to Rs. 4,50,450 crore in 2000-01 (at 1993-94 prices), indicating an impressive 86.4 percent increase during the period.

Comparative Efficiency with the Large-Scale Sector

The debate over whether large-scale or small-scale industries are more efficient was addressed in a 1999 study by SIDBI in collaboration with NCAER, covering the period 1980-1994. The study found that small-scale industries, with a capital investment of only 7 to 15 percent of the total manufacturing sector, contributed nearly one-fifth of industrial output and 35 to 40 percent of total employment. Both labor and capital productivity in the small-scale sector outpaced the large-scale sector from 1980 to 1994, indicating higher efficiency in the former.

Employment Generation

Small-scale units employed 129.80 lakh people in 1991-92, and this figure consistently grew to 185.6 lakh people in 2000-01. Given the prevalent issue of unemployment in India, the development of small-scale and cottage industries becomes crucial for creating employment opportunities. With surplus labor in agriculture and limited employment prospects in the capital-intensive large-scale industrial sector, the employment argument strongly supports the promotion of small-scale and cottage industries in India.

Promoting Equitable Distribution of National Income

Advocates for small-scale and cottage industries emphasize their role in fostering a more equitable distribution of national income and wealth, attributing this to two key factors:

• Small-scale industries exhibit a more widespread ownership compared to large-scale industries.
• They offer substantial employment opportunities in contrast to larger industrial counterparts.

Geographic Dispersion of Industries

• Large-scale industries have experienced significant concentration in states like Maharashtra, West Bengal, Gujarat, and Tamil Nadu, leading to an escalation of regional imbalances in industrial development. Even within these industrially advanced states, industrial activities tend to cluster in a few major cities such as Mumbai and Chennai.
• This concentration prompts a substantial influx of people from villages and smaller urban centers to these industrial hubs, contributing to the proliferation of slums and various social and personal challenges, while also causing environmental pollution.
• In contrast, small-scale industries are typically established to cater to local demand, allowing for easy dispersion across the entire state. They have the potential to bring about a qualitative transformation in a state's economy. A notable illustration of this trend is evident in Punjab's economy, where the prevalence of small-scale industrial units surpasses even the industrially developed state of Maharashtra.

Mobilization of Capital and Entrepreneurial Skill

• Small-scale industries enjoy a distinct advantage in the mobilization of capital and entrepreneurial skill. Numerous entrepreneurs are dispersed across small towns, and village industries are spread throughout the entire country.
• Similarly, large-scale industries face challenges in mobilizing savings from areas distant from urban centers. However, this can be effectively addressed by establishing a network of small-scale and cottage industries. Additionally, small-scale and cottage industries can efficiently utilize a multitude of resources scattered throughout the country. The rapid growth of small-scale industries post-independence serves as evidence that, with the necessary credit, power, and technical knowledge, the latent resources of the economy can be harnessed for industrial development.

Reduced Industrial Disputes

• Supporters of small-scale and cottage industries argue that, in comparison to large-scale units, these industries experience fewer industrial disputes. While large industries frequently witness strikes and lockouts, small-scale and cottage industries are less prone to such problems.
• However, it's important to note that this perspective may not be entirely accurate. Workers in large-scale units are organized, and their strikes are well-publicized in the media. In contrast, workers in small-scale units are unorganized and may not resort to strikes. Any worker expressing dissent may be promptly dismissed. Thus, while the surface relations between employers and employees in small-scale units may seem normal, underlying issues may exist. In the case of cottage industries, disputes are virtually nonexistent, as the primary form of labor in these industries is family-based.

Contribution to Exports

• With the establishment of numerous modern small-scale industries in the post-independence era, the contribution of the small-scale sector to export earnings has significantly increased.
• Notably, approximately 93 percent of small-scale industries' exports consist of non-traditional items such as ready-made garments, sports goods, finished leather, leather products, woollen garments and knitwear, processed foods, chemicals, and various engineering goods. The total export of small-scale industry products grew from Rs. 150 crore in 1971-72 to Rs. 48,979 crore in 1998-99. This signifies an increase in the small-scale industries' share in the country's total exports from 9.6 percent in 1971-72 to 34.9 percent in 1998-99, with the small-scale sector contributing about 45 percent to manufacturing exports. In 2000-01, small-scale sector exports were estimated at $13 billion, constituting around 30 percent of total exports that year.