Small Scale Enterprise

Small Scale Enterprises (SSEs) play an important role in the development process, acting as an essential link in the industrialisation process in production, employment, and exports for economic prosperity, by expanding the entrepreneurial base and utilising local raw materials and skills. SSE dominates the industrial landscape in the country, employing a sizable portion of the workforce and offering enormous export potential.

Who are small scale enterprises?

The Government of India’s definition of Small Scale enterprises is based on investment in plant and machinery and turnover. This measure is designed to take into account India’s socio-economic environment, characterised by a scarcity of capital and a surplus of labour.

An enterprise is considered a small scale enterprise if it has invested around 10 crores in plant and machinery and its turnover does not exceed 50 crores. 

Types of Small Scale enterprises in India

Small business units can be classified into the following categories based on the amount of investment they have done to set up their businesses:

(1) Small-scale manufacturing (Before 2006)

They invest in machinery and plants with a value of less than one crore in fixed assets.

The expenditure ceiling in machinery and plant for improving and modernising exports is five crores.

(2) Small Industrial Unit (Ancillary)

This industry qualifies as a small ancillary industry if it sells at least 50% of its product to another company, such as the parent unit.

The parent unit can make machine parts, components, tools, or standard products.

(3)Village Industries 

A village industry is defined as any industry located in a rural area that produces any goods or provides any service with or without the use of electricity, and in which the fixed capital investment per head, artisan, or worker is set by the central government from time to time.

(4)Cottage industries

Cottage Industries are small businesses that operate in their own homes Rural and traditional industries are terms used to describe cottage industries. In contrast to other small-scale industries, they are not defined by capital investment criteria.

(5)Women-owned Small-Scale Businesses

An enterprise run by women entrepreneurs with a minimum share capital of 51%, either individually or jointly.

Such businesses can take advantage of government special grants, low-interest loans, and other benefits.

(6) Small Manufacturing Units

It is an industrial or a company that spends less than Rs. 25 lakhs on machinery and plant.

(7) Service and Business on a Small Scale

It is a fixed asset investment that should not exceed Rs. 10 lakhs, excluding land and buildings.

Role of small scale enterprises in India

Employment opportunities: Small industries, after the agriculture sector, provide the most job opportunities.

Wide variety of products: Small businesses utilise technology and readily available resources to provide a wide range of consumer and specialised products.

Optimal Resource Utilisation: Small businesses enable optimum resource utilisation by utilising locally available resources and simple technology.

Encourage Locals: It provides and encourages local people to start businesses, making the most of their handicraft and other artistic abilities.

Quick expansion: Because the organisations are small, quick and timely decisions can be made without involving many people, as is the case in larger organisations. At the appropriate time, new business opportunities can be seized.

Low costs: SMEs also have the benefit of low production costs. Resources that are available locally are less expensive. Because of low overhead expenses, small businesses have a lower start-up and operating costs. Small businesses’ competitive advantage is their low cost of production.

Challenges faced by Small Scale Enterprises in India

Many businesses must operate below total capacity due to a lack of marketing skills or demand, causing their operating costs to rise. Gradually, this leads to illness and the business’s closure.

Global competition: In addition to the issues above, MSME faces several concerns, particularly in the current context of globalisation. These businesses compete with medium and large companies and multinational corporations that are massive in size and revenue.

Quality: Many MSMEs do not meet the desired quality standards. Instead, they focus on lowering costs and maintaining low prices. They lack the financial means to invest in high-quality research and uphold industry standards.

Marketing: Because it generates revenue, marketing is one of the most critical activities. A thorough understanding of the customer’s needs and requirements is necessary for effective product marketing. Marketing is usually a weak spot for small businesses. As a result, these businesses must rely heavily on intermediaries, who may take advantage of them by offering low prices and delaying payments.

Finance: One of the most severe issues MSME faces is inadequate funding to carry out their operations. These companies usually start with a small amount of money. Many small businesses lack the creditworthiness necessary to access capital markets. As a result, they heavily rely on local financial resources and are frequently exploited by money lenders.

Conclusion

Small-scale industries play a critical role in the country’s socio-economic development. These industries account for 95% of all industrial units, contributing up to 40% of total gross industrial value-added and 45% of total exports. After agriculture, SSEs employ the second-largest number of people and produce a wide range of goods for the economy. By utilising locally available materials and indigenous technology, these units contribute to balanced regional development and create employment opportunities.