Small-Scale Industries in India – Types, Eligibility, Registration, Examples

Small-scale industries (SSIs) are the building blocks of any country's economy. They play an essential role in generating employment. Small-scale industries are labor intensive yet require less capital, and production is at a small scale. These types of industries can be either manufacturing industries or service providers. The article talks about small-scale industries in India, their types, characteristics, objectives, and their registration processes under the MSMED Act.

The demand for small-scale industries is snowballing. Some Indian SSIs export their products and contribute towards bringing foreign currencies. 45-55 % of products shipped outside India are from small-scale and mid-scale industries, while some SSIs are created to meet the demands of vendors for multinational companies.

If you want to upskill yourself for free, then consider exploring FREE Online Courses by top online course providers like Coursera, edX, Udemy, NPTEL, etc., across various domains, like Technology, Data Science, Management, Finance, etc., and improve your hiring chances. 

Content

• What is a Small Scale industry
• Types of Small-Scale Industries
• Eligibility for Small-Scale Industries
• Examples of Small-Scale Industries
• Role of Small-Scale Industries in India
• SSI Case Study: Amul – A Small-Scale Dairy That Became a National Brand
• Getting SSI Registration in India
• Benefits of Registering Small-Scale Industries
• Objectives of SSI
• Characteristics of Small-Scale Industries
• Role of Small-Scale Industries in the Indian Economy

What is a Small Scale industry?

A Small-Scale Industry (SSI) refers to a business that operates on a smaller scale than large industries. These industries have a limited investment, workforce, and production capacity. They normally manufacture goods, offer services, or trade, but with the objective of local or niche markets.

In India, the Ministry of Micro, Small, and Medium Enterprises (MSME) classifies industries based on their investment in plant, machinery, and equipment and their annual turnover.

Eligibility for Small-Scale Industries

As MSME) Act, 2006, small-scale industries’ classification depends on capital investments in machines and equipment. These investments are specified for both manufacturing-oriented units as well as service-oriented units. The level of investment required is – 

Role of Small-Scale Industries in India

• Employment Generation – SSIs generate employment for a large segment of India's population, especially in rural and semi-urban areas.
• Contribution to GDP – Small industries are vital to India's economic development through manufacturing and exports.
• Entrepreneurship Promotion – Several small enterprises foster self-employment and entrepreneurship.
• Support to Large Industries – SSIs supply raw materials and components to larger industries.
• Regional Development - It reduces the economic disparities between urban and rural people.

Boost your financial knowledge and expertise with an online MBA in Finance. Master investment management, risk analysis, and financial planning and analysis from top institutions like IIMs, XLRI, MDI, and Amity Online. Also learn essential soft skills, such as problem-solving, decision-making, and business transformation.

Types of Small-Scale Industries

Manufacturing/Processing/Assembling industries

Manufacturing/Processing/Assembling industries manufacture consumable goods. Examples include power looms, food and beverage processing units, engineering units, etc.

Ancillary Industries

Ancillary industries are feeder industries that manufacture and supply intermediate goods to other manufacturers. Examples include nuts and bolts manufacturing, electronic components, parts, components, sub-assemblies, tooling, or even engines for industries like electronics, automobiles, medical, etc.

Service Industries

Service-based industries are the ones that offer services. Examples include tourism, finance, fitness, beauty and wellness, mechanical repair, media and entertainment, design, etc. 

Examples of Small-Scale Industries

• Candle & Wax Product Making
• Spices manufacturing
• Fruit juice extraction, processing, and packaging
• Incense Stick and Camphor Manufacturing
• Pickles and Papad
• Bakery and Chocolates
• Soap Production
• Small toys manufacturing
• Handloom and Handicrafts
• Paper packaging
• Stationery
• Leather product manufacturing 
• Beauty parlors

SSI Case Study: Amul – A Small-Scale Dairy That Became a National Brand

Amul is one of India's best examples of a small-scale industry that grew beyond expectations. It started in 1946 as a small dairy cooperative in Anand, Gujarat, to help local farmers get fair prices for their milk. It was led by Dr. Verghese Kurien,  regarded as the "Father of the White Revolution" in India.

Amul was initially a collecting and processing concern for milk produced by local farmers. Over the years, the company developed newer methods of producing and storing milk. Amul became popular with these improvements in quality and fair returns to the farmer. The famous butter, cheese, and milk items it introduced catapulted it into the Indian householder's world.

Today, Amul has become a multibillion-dollar brand, supplying not only the Indian market but also overseas. It clocked a group turnover of Rs. 80,000 crore ($10 billion) in 2023-24.  Amul has enabled millions of farmers to earn a steady income through its cooperative model.

Getting SSI Registration in India

The SSI registration process varies from state to state.

Note that most states now follow significant major steps in SSI registration.

Step 1: Provisional SSI Registration

Businesses must first apply for the Provisional SSI Registration Certificate (PRC) during their pre-operative period at the Ministry of Micro, small, and Medium Enterprises. PRC helps businesses obtain –

• Term loans 
• Working capital from banks under priority sector lending
• Facilities for accommodation, land, other approvals, etc. 
• Necessary NOCs and clearances from regulatory authorities such as Pollution Control Board, Labour Regulations, etc.

A business can apply for provisional SSI registration anytime. These registrations are valid for five years. If the entrepreneur cannot set up their unit in this period, s/he needs to make a new application for provisional registration at the end of five years.

Step 2: Start the Business

The provisional SSI registration certificate allows entrepreneurs to start any activity or production in their business units.

Step 3: Permanent SSI Registration

After the business commences production or activity, it must apply and obtain permanent SSI registration.  

Check out the top finance interview questions

Benefits of Registering Small-Scale Industries

Small-scale businesses get some benefits from the central/state governments, as listed below – 

• Priority sector lending or a lower rate of interest
• Excise exclusion
• Exemption from direct tax laws
• Statutory help. For example, the Reservation and Interest on Delayed Payments Act.
• Specific facilities and incentives – UTs and states offer for the SSIs, such as subsidies and sponsorships, reduced power tariffs, rebates on capital investments, etc.

Explore – Banking Courses

Objectives of Small-Scale Industries

Some of the objectives of small-scale industries include the following – 

• Create employment opportunities
• Contribute to developing rural and less developed areas, and reduce regional imbalances.
• Efficiently utilize unexploited natural resources. 
• Improve the quality of living in less privileged societies 
• Ensure equal distribution of income and wealth
• Empower the rural population, particularly women
• Produce better quality products at lower costs

Characteristics of Small-Scale Industries

Listed below are some of the characteristics of the small-scale industries that set them apart from large-scale industries.

Ownership

Usually, there is single ownership of the SSIs, which could be either a sole proprietorship or a partnership.

Must Explore – Entrepreneurship Courses

Management

Generally, the management and the control are with the owner/s. They are involved in the daily tasks and management within the enterprise.

The availability of resources determines less Dependence on Tech Everything, but, in general, it can be said that, given the scale at which it is planned to work, the level of technology to be applied is fundamental, and this determines that the equipment is also simple and therefore low cost.

Flexibility

SSIs are flexible in the dynamic business environment. They adapt quickly in case of amendments or emergencies.

Local Reach

The zone of operations for SSIs is restricted, enabling them to fulfill their local/regional demands.

Resources Utilization

SSIs utilize local and natural resources that are readily available while ensuring minimum wastage.

Role of Small-Scale Industries in the Indian Economy

As discussed above, SSIs have been actively contributing towards the growth of the Indian economy; let’s see how –

Employment

SSIs are a significant source of employment in countries like ours. Since they are not heavily dependent on technology and resources, they pose demands for manual labor and a workforce for their production activities.

Total Production

These enterprises account for almost 40% of India’s total production of goods and services. They have been contributing to the growth of the Indian economy.

Make in India

SSIs use local and regional resources and thus are the perfect examples of the Make in India initiative by the Government of India. They aim to produce products locally and sell them globally. 

Export Contribution

The demand for locally made products is at an all-time high, and in recent years, the global market has also posed demands for such products. This has made small-scale industries upgrade their quality and quantities and add to the exports. These industries manufacture or produce nearly half of the goods exported from India.

Public Welfare

These industries have an opportunity to earn wealth and create employment. SSIs are also essential for the social growth and development of our country.

Scope for Growth

SSIs are the perfect base for medium and then Large Scale Industries (LSI) growth. These businesses promote the development and growth of entrepreneurs. Given the low investments and use of simple technologies and local resources to meet local demands, India has seen the growth of several new SSIs, thereby creating scope for the growth and development of LSI.

Conclusion

The local marketplace of India is growing leas and bounds and is going global. Small-scale industries have contributed towards nation-building through effective business planning, and more and more new brains are exploring opportunities in this segment. Online marketplaces like Amazon are actively promoting local brands, and this has also helped them to reach households in a concise time. Aspiring entrepreneurs can also benefit from the aid offered by the Indian government and develop strategic plans to tap the local markets.