The following points highlight the four main arguments in favour of small scale industries. They are: 1. The Employment Argument 2. The Equality Argument 3. The Latent Resources Argument 4. Decentralisation Argument.

1. The Employment Argument:

Regarding employment the Karve Com­mittee has stated:

“The principle of self-employment is at least as important to a successful democracy as that of self-government.”

This argument depicts that small industries are labour-intensive and the capital-labour ratio is lower than that of large industries. The overheads are also low and acts as a compensatory factor to large-scale industries.


However, employment should not be created for the sake of employ­ment. The problem is not how to absorb surplus resources but how best to utilise them. It follows that small-scale units maximise output from scarce resources, and entrepreneurship and employment is created as a result of that. It has been shown that employment generation capacity of the small sector is eight times that of the large sector.

2. The Equality Argument:

This view suggests that the income generated by a large number of unit is dispersed more widely than that generated by a few large houses. A larger number of people share the income and the effect is to bridge the gap between the rich and the poor. Moreover the organisations being small, the relationship between workers and manage­ment is cordial.

The point against this proposition is that smaller industries pay low wages and due to lack of powerful union the workers are exploited Small enterprises therefore generate less savings and the result is low rate of capital and slow growth of the economy.

The only alternative for a low paid worker is no job against a low paid job as big units cannot provide for so many.


It is also true that the small enterprise encourage competition, creates room for self-development and reliance, and weakens the formation of monopolies.

3. The Latent Resources Argument:

Small-scale enterprises can tap poten­tial resources like hoarded wealth and entrepreneurial abilities. This is a definite gain to the community. It also encourages the growth of a new class of entrepreneurs which is a dynamic element in the economy and creates an environment for growth.

4. Decentralisation Argument:

This refers to the necessity of regional dispersal of industries. The large industries, which are mostly situated in big cities and towns to enjoy the benefit of industrialisation, must encourage small enterprises. A country becomes truly industrialised only if the indus­tries are well-spread and penetrate to the remotest places.

Decentralisation also helps to tap local resources and also improves the standard of living in the backward regions as well as helps to reduce congestion in the few metropolitan areas where a great influx of job seekers are a perpetual problem.