Small scale and cottage industries have an important role in India’s industrial and economic development as would be clear from the discussion below:
1. Expansion of SSI sector and its share in industrial output.
The number of units in the small scale sector was 15.91 lakh in 2002-03 and this rose to 24.68 lakh in 2007-08. As far as output of units in the SSI sector is concerned, it was Rs. 3,14,850 crore in 2002-03 and this rose to rs. 6,95,126 crore in 2007-08. The production in the SSI sector rose by 17.5 per cent in 2006-07 and by 18.8 per cent in 2007-08. The share of small scale industries in the country’s manufacturing output is around 39 per cent.
2. Employment generation. The SSI sector employed 264 lakh people in 2002-03 and this number rose to 322 lakh people in 2007-08. Within the manufacturing sector itself, small and decentralized sector contributes about four-fifths of manufacturing employment in India.
An important constituent of this sector is the manufacturing activity consisting mainly of textile based and agro based products and units producing construction materials. In the urban areas employment potential seems to be the largest in the non household, tiny sector segment of the manufacturing sector. Overall, it has been estimated that labour intensity in the micro and small enterprises sector is almost 4 times higher than the large enterprises.
3. Efficiency of small scale industries. Whether large scale industries are more efficient or small scale industries are more efficient, is a matter of debate. The problem arises because of the fact that efficiency can be defined in many different ways.
Comparison of the SSI sector with large manufacturing sector made for the year 2001-02 by the Census Report shows that the SSI sector is a better employment generating sector.
This would be clear from the fact that employment generated by the SSI sector per Rs. One lakh investment was 1.39, as against only 0.20 in respect of the large manufacturing sector. This means that the organized sector requires an investment of Rs. 5 lakh to generate employment for one person whereas the SSI sector generates employment for 7 persons with the same investment.
With regard to investment output ratio also, the SSI sector fared almost on par with the organized sector an investment of about Rs. 43,000 was required in the organized sector to generate an output worth Rs. One lakh whereas in the SSI sector, a marginally higher investment of Rs. 48,000 was required to generate the same amount of output.
4. Equitable distribution of national income. One of the main arguments put forward in support of the small scale and cottage industries is that they ensure a more equitable distribution of national income and wealth. This is accomplished because of the following two considerations:
(i) The ownership of small scale industries is more widespread than the ownership of large scale industries, and
(ii) They possess a much larger employment potential as compared to the large industries.
5. Mobilization of capital and entrepreneurial skill.
6. Regional dispersal of industries
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