Read this article to learn about the growth of employment in small industries in India!

While the formal sector shows a negative growth in employment, the small-scale manufacturing sector shows a lot of buoyancy. The annual pre-budget Economic Surveys show that small industries have been growing steadily. The 2004-5 survey showed that this sector employed around 28 million workers and this was growing by over 4 per cent per annum.

The number of workers in this sector is more than the employment provided by the entire formal sector. The remarkable growth of small-scale industries is an outcome of this sector’s demarcation as a thrust area in the industrial policy of 1991. The policy had stated that the small-scale sector would be encouraged to play a dynamic role in growth and employment.

The stipulation of initial capital investment for small-scale industries was raised from Rs 5 lacks in 1955 to Rs 1.5 crores in the Union Budget for 2007-8. This has made it possible to upgrade technology and include high-tech industries in this sector. In this case we find that the NDA government only extended what the Congress government had done.


As a result, small-scale industries contribute in the region of thirty-five per cent to India’s export earnings (Gol 2003). This is certainly a good sign, but it could have been appreciated even more if conditions of their labour component had not remained pathetic.

The rapid growth of small-scale industries is due to the above- mentioned policy measures and also the restructuring of large industries, especially in the consumer goods and pharmaceutical sectors. These industries were originally based in urban centres like Mumbai, Ahmedabad, Kolkata, etc.

They started closing down their operations through downsizing the labour force and shifting their production to smaller towns where labour is cheap, there are fewer or no unions, and labour laws are not applied as stringently as in the urban-industrial sector.

On the other hand, the government, in its bid to promote industrial development of these areas, demarcates special areas called ‘industrial development zones’ operated through the state’s industrial development corporation. The state government concerned usually grants an array of incentives to induce industrialists to set up their units in industrial development areas.


These include availability of land at low rent, industrial sheds, and exemption of local duties such as sales tax for a specific period of time (usually for the first five years). Several large companies take advantage of such offers and move production from the larger cities to these smaller centres to avail themselves of the benefits that lead to reduction in costs.

This does not necessarily mean that the consumers will gain by getting goods at cheaper rates. This process is similar to the type of outsourcing in production witnessed between countries of the North and the South. Just as industrial production in the developed countries of Europe is outsourced to the less-developed countries, similarly, the large-scale sector in India outsources its production to the small-scale sector in non-urban areas, as costs are low. This is discussed in detail in the section on outsourcing below.