The case for the development of small-scale industries is particularly strong in under-developed but developing countries like India.

These small-scale industries satisfy many of the investment criteria that one often prescribes for the planned development of the country.


Firstly, small-scale industries are labour-intensive, i.e., labour-investment ratio in their case is quite high. A given amount of capital invested in small-scale industrial undertakings is likely to provide more employment, at least in the short run, than the same amount of capital invested in large-scale undertakings.

This is a very important matter for our country where millions of people are either unemployed or under-employed. Further, the encouragement of small-scale industry would serve to counteract the seasonal unemployment in agriculture and thus to utilise labour which might otherwise go to waste.



Secondly, small-scale industries are capital-light, i.e., they need relatively smaller amount of capital than that required by large-scale industries, since the capital-output ratio is much smaller in the case of the former. Thus, one of the great advantages of small-scale industries is that they make possible economies in the use of capital. Capital is already scarce in an under-developed country like India.

Capital Formation:

Thirdly, besides making possible economies in the use of Ike existing stock of capital, small-scale industry may call into being capital that would not otherwise have come into existence. The spreading of industries over the countryside would encourage the habits of thrift and investment in the rural areas. Moreover, the enterprising Small manufacturer has to scrape together capital where he can find it. He often manages to get it from relatives and friends. This capital probably would never have come into existence as productive capital, had it not been for the small enterpriser.


Fourthly, the peculiar attraction of small-scale industries lies in their being skill-light. A large-scale industry calls for a great deal of man­agement and supervising skill—foremen, engineers, accountants, and so on. Like capital, these skills are also in very short supply in our country, and it is important to economies as much as possible in their use. Small-scale industry provides a way of doing this and, at the same time, provides industrial experience and serves as a training ground for a large number of small-scale managers.

In India, with a long tradition of highly artistic products of cottage industry, there exists a considerable ‘fund’ of local and traditional skill. Small industry may be better able than large industry to take advantage of these existing traditional skills with minor adaptations.



Fifthly, small-scale industries are import-light, i.e., they use a relatively low proportion of imported equipment and materials as compared with the total amount used in them. A low-import intensity in the capital structure of the small-scale industries reduces the need for foreign capital or foreign exchange, and thus obviates the balance of payments difficulties later, and currently retains within the country a large part of whatever induced effects may materialize.

Quick Investment:

Sixthly, small-scale industries are of the “quick- Investment type”, i.e., those in which the time-lag between the execution of the investment project and the start of flow of consumable goods is relatively short. In a developing economy, with a high inflationary potential and need for a rapid rise in the living standards, the importance of such quick-investment type industries can hardly be exaggerated. The small-scale industries have a high fruition co-efficient (i.e., a high ratio between planned output and investment) and also a short fruition lag.


Seventhly, the development of small-scale industries will bring about dispersion or decentralisation of industries, and will thus promote the object of balanced regional development. A major drawback in the industrial structure of an under-developed country is that regional distribution of industries is exceedingly uneven.

On the one hand, there is a disproportionate growth of large-scale industries in a few areas, and on the other, a virtual absence of such industries in the greater part of the country. The development of small-scale industries will tend to correct this uneven distribution of industries in the country.

Equal Distribution of Income and Wealth:


Eighthly, small-scale and cottage industries have the additional advantage that, with decentralized industries, they secure a more even distribution of income and wealth. The development of large-scale industries tends to concentrate large incomes and wealth in a few hands. This is undesirable from the social point view, because it results in the exploitation of man by man. If also creates vested interests which put obstacles in the way of the economy marching towards its got’ of socialistic pattern of society.

Overcoming Territorial Immobility:

Lastly, by carrying the job to the worker, small-scale industries can overcome the difficulties of territorial immobility. Moreover, unlike large industries, small-scale industries do not create problems of slum housing, health and sanitation, etc., and the attendant disease, misery and squalor. Thus, there is a strong case for encouraging small-scale industries in under-developed countries like India.