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Small Scale Industries [Meaning and Types]

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For understanding the various types of small scale industries, it is imperative to understand the concept of a small business. Small business is held to be small when it is small in size, employing a lesser number of employees, having an investment of a small amount of capital, and even having an output or profit which is small. These are generic understanding of small business. Read on to understand the concept in detail.

Meaning of small scale industries

The Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 classifies the Micro, Small and Medium Enterprises into two divisions, which include:-

1. A Manufacturing Enterprise

It is engaged in the manufacture or production of goods which are connected to any industry specified in the first schedule to the Industries (Development and Regulation) Act, 1951). Also, they may operate through plant and machinery towards value addition to the final product. The final product may be having a distinct name or character, or use. The Manufacturing Enterprise is defined in terms of investment in Plant and Machinery.

As mentioned above, the first schedule contains a list of 38 industries. Some examples are Metallurgical, fuel, boilers, and others. All of these are defined as industries using manufacturing processes.

2. A Service Enterprise

It is engaged in providing or furnishing services. It is defined in terms of investment in equipment.

Types of Small Scale Businesses

Based on the amount of capital invested, a small business unit can be divided into various types. Let us run through them as follows:-

(1) Small Scale Industry classified before the year 2006:- This is in reference to the above MSMED Act. Prior to its execution, the small scale industries were those in which

  • Investment in fixed assets of machinery and plant did not exceed one crore.
  • They were engaged towards modernisation, export improvement and expenditure ceiling in machinery and plant exceeded five crores.

(2) Export Oriented Units is one of its exports that surpass 50 percent of its productions or manufacturing.

(3) Ancillary Small Industrial Unit

  • They are those industries that can hold the status of a small ancillary industry on the condition that the supplies are minimum 50 percent of its product to another business that is the parent unit.
  • They hold the status also if they can produce components, machine parts, standard products or tools for the parent unit.

(4) Tiny Industrial Units are those where the industry or company expenditure on machinery and plant does not surpass Rs. 25 lakhs.

(5) Small Scale Service and Business

  • Here the fixed asset financing on machinery and plant except land and building should not exceed Rs. 10 lakhs

(6) Small Scale Industries Owned by Women

  • These units can opt for the appropriate grants from the government, with low-interest rates on loans, and other benefits provided the enterprise is operated by women entrepreneurs and them alone or in merger hold share capital which is minimum of 51 percent.

(7) Village Industries as the name suggests are those industries which are placed in rural areas and produce any product or perform any service with or without the use of power. Here the fixed investments on capital are not to exceed Rs.50, 000.

(8) Micro Business Enterprises is a tiny and small business sector where the investment in machinery and plant should not surpass Rs.1 lakh.

(9) Cottage Industries as again the name suggests they are traditional or rural industries. The capital investment pattern does not include them.

Also read: Boiler Manufacturers in India

Features of cottage industry are

  • They use private resources.
  • They employ labour within the family and locally available talent.
  • Here simple instruments are made in use.
  • Capital investment is small.
  • Products are simple.
  • Technology utilised is indigenous.

(10) Small-scale Service and Business (Industry related) Enterprises (SSSBE) are those where the investment limit in fixed assets of plant and machinery has to be limited within Rs. 10 lakhs. Some examples are that of a beauty parlour, a marketing and advertising consultancy, an industrial testing laboratory, garages and auto repair, dry cleaning, a photocopying centre or a Xeroxing centre.

(11) Trading Units generally include small retailers found in the market places.

Government institutions to promote small scale industries

There are various measures taken by the government in India for the benefit of small businesses. Let us see some of them:-

  • National Small Industries Corporation(NSIC) works to support and promote the growth of small businesses all across the country operating throughout the nation by various Professional Centres and its offices.
  • Small Industries Development Organisation (SIDO) are autonomous bodies. Some examples are various training institutions, tool rooms, project and process centres, and other such development centres.
  • National Bank for Agriculture and Rural Development (NABARD) is an apex establishment; it finances the projects of rural development.
  • The Rural Small Business Development Centre (RSBDC) is Sponsored by NABARD, and it works for both socially and financially downtrodden people. It covers those in rural India who are jobless, young, and including women by providing them scope for small businesses.
  • Rural and Women Entrepreneurship Development strives to promote and encourage the entrepreneurial ventures of rural India and especially women.
  • Small Industries Development Bank of India (SIDBI) provides financial assistance under various schemes for the benefit of small-scale enterprises.
  • The National Commission for Enterprises in the Unorganised Sector (NCEUS) functions are to focus on approaching the difficulties faced by small enterprises.
  • World Association for Small and Medium Enterprise (WASME) is a global non-governmental body that approaches the difficulties of a small business. For industrialisation in rural India, it has an 'International Committee'.
  • Rural and Women Entrepreneurship Development (RWED) supports the small business development of rural masses and especially women.
  • Scheme of Funds for Generation of Traditional Industries(SFURTI) is a body that deals with industries which are traditional like that of Khadi or other village industries. The Coir Board is also important for this scheme.
  • District Industries Centres implement central and state-level schemes and work under State Directories.

Problems of Small Scale Industries

Several problems are faced by small scale industries. They include a shortage of finance, shortage of raw materials, lack of managerial skills, incompetent labor, issues of marketing, low-quality products, outdated technology, and global competition. Over time many efforts are made to do away with problems by spreading awareness and government support.

Conclusion

The government is striving towards initiatives through various incentives offered to industries in backward, tribal, and hilly areas. Concessions are provided to resources such as water, power, and land by the government for the small scale industries. Again, in the Union territories, the small businesses are saved from sales tax. Even octroi is not charged in various states from the small enterprises. There is special treatment given to Small Scale Industries in the allocation of limited resources such as raw materials. Loans are also disbursed at subsidised interest rates to the small scale industries. There are tax holidays and tax exemptions. So, small scale industries are incubated by the government as it aids in the economic development of the country.

Also read:

1) Is Market Research Useful for a Small Business?
2) Why are Small Businesses Important to the Community?
3) Best Tips for Small Business Owners
4) Where to Get a Small Business License?

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FAQs

Q. What is the tax holiday?

Ans. Tax Holiday: When an enterprise is exempted from tax for a period of five to ten years or is taxed at a low rate, it is called a tax holiday.

Q. What are a few examples of small businesses?

Ans. Their are few example of small businesses:

  • Agarbatti Making
  • Ice Cream Making
  • Bakery
  • Banana Wafer Making
  • Bindi Making
  • Latex Rubber Thread
  • Biscuit Making

Q. Is there government support for increasing the competitiveness of small scale industries for intellectual property rights?

Ans. Yes, the government supports the scheme of the National Manufacturing Competitiveness Programme (NMCP) to enhance the competitiveness of the SMEs sector. The site www.dcmsme.gov.in can be helpful for reference.