Essay on Small-Scale and Cottage Industries in India


During the three decades of planned development there has been an impressive development of large scale industries, but India still remains predominantly a country of village and small industries. Cottage and small scale industries are scattered over the whole country and they cover a wide range of traditional and modern small-scale industries including handloom, khadi, powerloom, seri­culture, coir, handicrafts, village industries and mechanized small-scale industries. It is no exaggeration, therefore, that cottage and small scale industries are the backbone of Indian economy.

Cottage and small-scale industries include four categories of industries, viz. (a) village industries, (b) cottage industries, (c) tiny-industries, and (d) small-scale industries. The village indu­stries are closely connected with agriculture and are mainly con­cerned with the processing of local raw-materials with simple techniques. The cottage industries are carried on by the artisans in their own cottages with their own family workers. Cottage indu­stries do not use power and employ a small amount of capital. Tiny industries are those industries in which capital investment is not more than Rs. 2 Lakhs. The Industrial Policy Resolution, 1980 has enhanced the limit of capital investment from Rs. 10 lakhs to Rs. 20 lakhs in case of small-scale industries. Small-scale indu­stries are localized in. urban and semi urban areas.

They use power and modern techniques, Small-scale and cottage industries have a great capacity to generate a large volume of employment. In India, capital is scarce, but cheap labour is abundantly available. Unemployment, under­employment and seasonal unemployment are rampant on a mass scale. The employment capacity of small industries being at least eight times that of the large industries, they can substantially help in solving this problem. Small enterprises tend to create a situation in which a more equitable distribution of income is made possible. The process of decentralization accelerated by small-scale industries, in addition to exploiting local resources, helps to reduce regional imbalances and the imbalances between rural and urban growth. Large-scale and small scale industries also complement each other, large scale industries, the emphasis is on the production of capital goods. But small enterprises concentrate on producing con­sumer goods.


Another important advantage of developing small units is that they not only do not require much foreign exchange earnings of the country. But above everything else, they can bring about awaken­ing among the people. They can make them self-confident and self-reliant.

The glorious past of cottage industries is well-known. We had flourishing cottage industries in early times, many of them having wide markets abroad. As the Industrial Commission observed in its report (1918) “At a time when the West Europe, the birth place of the modern industrial system, was inhabited by uncivilized tribes, India was famous for the wealth of her rulers and for the high artistic skill of her craftsmen” The skill of the Indians in the production of delicate women fabrics, in the mixing of colours, the working of metals and precious stones, the preparation of essences and in all manners of technical arts has, from very early times, enjoyed a world-wide celebrity. The muslin of Dacca, the shawls and carpets of Kashmir, the silk clothes of Delhi and Agra, the marble work of Jaipur and the velvets of Lucknow are a few products for which the people were crazy.

But all these glories have now become things of the past. The decline of these industries began in the third decade of the 19th century. The main causes of decline were (1) the industrial revolution in England and competition with mill-made goods, (2) alien rule and restrictive measures on the import of Indian goods into England, (3) disappearance of the demand of the products of cottage industries by Kings and Nawabs as their courts came to an end, (4) No liking for indigenous products by the newly-rising educated class, and (5) deterioration in the quality of Indian products themselves.

After independence, it was realized that the development of these industries is essential for the overall progress of the country. Therefore, the government gave a due attention in the plans. Rs.218 crore were spent by the government. The expenditure during the Third Plan and three Annual Plans was Rs. 241 crore and Rs. 133 crore respectively. In the Fourth Plan, the expenditure was Rs. 251 crore as against the outlay of Rs. 293 crore. The Fifth Plan outlay for the development of those industries was Rs. 535 crore and estimated expenditure (during 1974-78) is Rs. 388 crore. An outlay of Rs. 162 crore has been earmarked in the Union Budget for 1981-82 for the village and small-scale industries adding to the outlay of Rs. 193 crore in the Plan of the States and Union Territories. The Sixth Five-Plan 1980-85 envisages an annual growth rate of 8.7%. in production in the small-scale sector.


Cottage and small-scale industries are most suited in Indian conditions. Rightly, therefore, they have occupied a dominant place in Indian economy. About two crore persons are engaged in these industries. The number of registered small-scale units was about 5.26 lakhs in 1976. Their output was worth about Rs. 15,000 crore. Apart from the quantitative growth, there has also been a signifi­cant increase in the variety of products manufactured by these units. They have ventured into many new and sophisticated fields of production like TV sets. They also supply parts and components to large scale industries engaged in the manufacture of machine tools, bicycles, automobiles, electrical appliances and machinery. There is a Small Industries Development Organization (S.I.D.O.) in the country which accounts for nearly 62 percent of the total production of the village and small industries sector. Employment in this sector has risen from 39.6 lakhs to 64.6 lakhs Exports from the sector amounted to Rs. 1050 crore representing about 16 per cent of the total export during 1979-80.

Small-Scale and cottage industries are faced with the follow­ing problems at present:

(1) Problem of Raw-material—Due to their limited resources, the owners of these industries cannot afford to purchase raw-material in bulk. That is why they get low quality materials at high rates.

(2) Problem of finance – Cheap and easy finance is not avail­able to these industries. The financing system of government insti­tutions and banks is such that these industries have to complete many formalities and there are so many complications which can be followed by these less educated entrepreneurs.


(3) Marketing problems—These industries mainly exist in villages and due to lack of transport and communication facilities they are handicapped in finding suitable markets for their products,

(4) Lack of Managerial Talent Cottage and small scale indu­stries are mostly run by the small businessmen having no training of management and organization. How these industries, therefore, can stand before the large seals industries which are managed and organized by the specialists of that field?

(5) Competition with large-scale industries—The main problem before these industries is that they are unable to compete with large-scale industries. The economies of large-scale production are not available to them and therefore they fail to compete with large-scale industries.

Keeping in view the importance of cottage and small seals industries the government have taken many steps to overcome their problems. The main steps taken are:


(a) The Union Government has set up a number of agencies to help the village and small industries. These include the Small Scale Industries Board the Khadi and Village Industries Commi­ssion, the All India Handicrafts Board, the AH India-Handloom Board and Central Silk Board,

(b) Credit facilities are made available to these industries through a number of institutions. Small scale sector is included m the priority sector for the supply of institutional credit.

(c) Industrial estates and rural industrial projects have been set up and industrial co-operatives have been organized.

(d) To encourage the small scale sector, the Central Govern­ment has reserved 807 items for exclusive production in the sector.


(e) The District Industries Centres are being established at the district level to provide under one roof, all the services and support required by small and village entrepreneurs.

The Industrial Policy Resolution, 1980 has this following pro­visions for the development of cottage and small-scale industries :

(a) Introducing a scheme for building up of buffer stocks of essential materials which are often difficult to obtain. Special needs of states which rely heavily on a few essential raw-materials will receive priority.

(b) To generate as many ancillaries and small and cottage suits as possible, the government will set up a few nucleus plants in each district. A nucleus plant would concentrate on assembling the
products of the ancillary and small scale units falling within its orbit.

(c) Enhancing the limit of capital investment for small scale and ancillary industries.

In the over-populated countries like ours, the only way to fight the monster of unemployment is the development of cottage and small scale industries. They will bring about a more equitable distribution of wealth. In the words of Dr. V.K.R.V. Rao, ”Small scale and cottage industries have a special claim for consideration in that they are the local investments through which the decentralization of industrial production can be achieved.” It can, there­fore, be said that ‘Small is Beautiful’.

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