How to Start a Small Scale Industry in India? Where to begin?

. 7 min read
How to Start a Small Scale Industry in India? Where to begin?

Small scale industries are very labour-intensive, yet they require limited capital. Therefore a large number of people want to start their small-scale industry. In this article, we will discuss what a small scale industry is and how to start a small scale industry in India.

What are small scale industries?

Small scale industries are those industries that are labour-intensive yet require less or limited capital. These industries are also characterised by the use of smaller machines and fewer employees. Small scale industries have thrived and flourished in the Indian economy in the last three decades. About 95 per cent of the industrial units in India are small-scale industries. There are three types of small scale industries which are as follows:

  1. Manufacturing industries: The industries that produce finished goods either for consumption or other industries are manufacturing industries. These are generally owned by a single individual. One such example of a small scale manufacturing business is the food processing industry.
  2. Ancillary Industries: These industries help the big or multinational companies manufacture finished goods by providing them with some of the parts necessary for manufacturing the finished goods. These industries can be identified as those industries which make machines for those multinational companies.
  3. Service industry: the industry that helps repair and maintain a product is classified as the service industry.

Since we discussed earlier that the small scale industries require less capital. Therefore small business owners and entrepreneurs are always willing to start their own small scale industry business. So here are few tips for those who wish to start their small-scale industry business.

Tips to start a small scale industry in India

1. Product Selection

The first and foremost step which should be taken while launching a small scale industry is to choose a product to be produced. Before choosing that product, one must also conduct market research on various products and then only choose to produce it. Some factors which must be kept in mind while researching on the market are:

  1. The product must be unique.
  2. The product must have little or low competition from its competitors in the market.
  3. The product should be new and innovative.
  4. The raw materials needed to produce these products must be readily available.
  5. The production of the product must be in the budget.
  6. The product should be easily accessible in the market

The potential business entrepreneur must have clear small scale industry ideas before production because the product is the core of the business. Some small scale industries examples are producing handmade chocolates, making handmade soaps, producing spices, papad, and other dry food items, producing hair oil, etc.

2. Location of the Enterprise

Location is a crucial factor while setting up a small scale industry. Location affects a lot of other important factors such as transportation costs, availability of raw materials, availability of land at low rates. Suppose the location of the production unit is in the proximity of the source of raw materials. In that case, the transportation costs reduce and it maximises the profit. In India, the government also offers pre-built areas or developed plots to develop small scale industries. So if a person wants to start a small scale manufacturing business, he/she can easily start one by registering with the government.

3. The pattern of the Organisation

Small scale industries can be chosen to be in three main forms of ownership. These are Proprietary, Partnership, and Company.

Proprietary implies all the rights that the proprietor or the property owner can exercise and all the items or products produced and marketed under exclusive rights. By exclusive right, we mean that those rights are to be exercised only by the proprietor.  The proprietary also has a registered trade name. This trade name also protects the business from unethical works such as copying.

A partnership is an association of two or more people. The individuals involved in the small scale industry business invest their money together in the partnership and carry on the company as a joint venture. While being in a joint venture, the benefits and the losses are immense because of the profits, losses, and risks shared by all the individuals involved. The partnership is also characterised by the fact that the business gets the combined capital and managerial skills of all the individuals involved. There the "partners" get a mutual benefit.

A company abbreviated as co. is a legal entity that is created by the state whose liabilities and assets are separate from its owner. A company represents an association of people who may be natural legal or a mixture sharing a specific objective.

Therefore according to the above guide, a person can decide the pattern of his organisation.

4. Project Appraisal

Project appraisal signifies the analysis of a scheme or project that has to be prepared according to all the aspects such as financial aspect,  technical aspect, marketing, and management. This is done so that it will become the most feasible enterprise. It also helps the entrepreneur to acquire data that will help him in the future. This will help it to become one of the best small scale industries.

Analysis of the project is done by researching the product’s performance in the market, its demands, and consumption. One can also analyse a certain idea by researching it, just like it was stated above. So that if the idea about a certain product works and helps in more sales, it will be incorporated by the company or enterprise for a long period. But if the idea doesn't work, it can be discarded as soon as possible.

5. Registration with Authorities

After all the above steps are done, the small scale industry should be registered with higher authorities like DGSD, RBI, RLA and State Directorate of India. This should be done so as the government will recognise one's industry. Small scale industry registration has become hassle-free as, under the Udyog Aadhar scheme, one can easily fill the online registration form to get the registry done. It is free of cost one doesn't even need to pay for the processing. After registration, one will get the registration certificate on the email id only after the documents verification is completed. Some information that is compulsory to be shown is contact details, bank details, and business details, number of employees. An Aadhar card is also one of the mandatory documents to be shared.

These were few steps that should be taken if a person wants to be an entrepreneur of a small scale industry business. This is a basic guide for a person who does not know how to start a small scale industry. Some small scale industry examples are Rice mills, potato chips, beverages, toys, etc.

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Q. What are the important characteristics of a small scale industry?

Ans. A small scale industry requires low capital investment and is labour-intensive. This industry also produces products in fewer numbers. These are the main characteristics of the small scale industries.

Q. What are the most critical points to be kept in mind while selecting a product?

Ans. While selecting a product, one must remember that the product has heavy demand, is unique, accessible, must be within the budget, and must have fewer competitors.

Q. What Is the significance of the production unit being situated in the source of raw material?

Ans. When the small scale industry’s production unit is situated near the source of raw materials, the cost of transportation is reduced significantly. This, in turn, helps to maximise the profits.

Q. Why is project appraisal necessary?

Ans. Project appraisal means when a project, an idea to be executed, is studied thoroughly. This is done by researching the project and then executing it if it works or discarding it if it doesn't.

Q. Why is a trade name necessary?

Ans. A trade name is necessary for a small scale industry because it gives the enterprise, identity of its own. It is recognised by the government with the trade name. The trade name also protects the enterprise if any unfair trade practices are done in the name of the enterprise.