Small Industries — Role, importance and challenges

Small-scale industries make up about 95 per cent of all industrial units and form a significant part of the economic structure of the nation. Mahatma Gandhi said that “The salvation of India lies in cottage and small scale industries”. According to MoSPI, it employs about 175 lakh people. Hence, this sector plays an important role in employment generation too. The range of industries includes modern small-scale industries, unorganised traditional industries, and organised big and medium-sized businesses.

How are small industries compared to other industries under MSMEs?

Classification of Industries
Classification/Industry type	Micro	Small	Medium
Investment	Not more than Rs.1 crore	Not more than Rs.10 crore	Not more than Rs.50 crore
Annual Turnover	Not more than Rs. 5 crore	Not more than Rs. 50 crore	Not more than Rs. 250 crore

Role of small industries in the Indian Economy

Growth of entrepreneurial activities: Small industries’ innovative business practices have aided in expanding the influence of entrepreneurial activities. This has led to include more economic sectors and offer a wider variety of goods and services satisfying both local and international consumer needs.

Industrialisation of rural and underdeveloped areas: They have lowered regional imbalances and ensured a more equitable distribution of wealth and income across the country.

Employment generation: These small industries in India play a critical role in the country’s economic growth by creating large employment opportunities at a significantly lower capital cost than large industries.

Government’s initiatives

Prime Minister’s Employment Generation Programme (PMEGP): The program’s objective is to create jobs by establishing new microbusinesses, projects, and self-employment endeavours in both rural and urban sections of the nation. Khadi and Village Industries Commission (KVIC), the national nodal body, is responsible for implementing the scheme. The State offices of KVIC, State Khadi and Village Industries Boards (KVIB), District Industries Centres (DIC), Coir Board (for coir-related activities), and Banks are the entities that carry out the scheme at the State level.

Collateral-Free Credit Provision for MSME: Banks and other financial institutions (including NBFCs) are guaranteed to offer collateral-free credit to Micro and Small Businesses. The Scheme covers up to Rs. 5 crore (w.e.f. 01.04.2023) per borrowing unit of collateral-free credit facilities (term loans and/or working capital) provided to micro and small businesses by qualified lending institutions.

A Scheme for Promotion of Innovation, Rural Industry & Entrepreneurship (ASPIRE): The ASPIRE program was given approval to continue from 2021–2022 to 2025–2026 with a budgetary expenditure of Rs. 194.87 crore. On January 28, 2022, the updated guidelines were released, incorporating the subsequent goals and actions:

(i) Reduce unemployment and generate jobs,

(ii) Encourage India’s entrepreneurial culture,

(iii) Encourage innovation to boost the MSME sector’s competitiveness.

Entrepreneurship and Skill Development Programmes (ESDP): The program’s goal is to encourage young people from a variety of social backgrounds, such as women, SC/ST, disabled people, ex-servicemen, and BPL individuals, to think about a career in self-employment or entrepreneurship.

Scheme of Fund for Regeneration of Traditional Industries (SFURTI): The scheme aims to create competitive, long-term sustainable employment opportunities for traditional industries and artisans by organising them into clusters. It also aims to improve the marketability of the products produced by these clusters, equip traditional artisans of the associated clusters with improved skills, provide improved tools and equipment for artisans, strengthen the cluster governance systems with active stakeholder participation, and develop innovative products, advanced technologies, advanced processes, market intelligence, and new models of public-private partnerships.

MSME Champions Scheme: For a period of five years, from 2021–2022 to 2025–2026, the MSME Champions program consists of three parts:

1. MSME-Sustainable (ZED) Certification Scheme

2. MSME-Competitive (Lean) Scheme

3. MSME-Innovative (for Incubation, IPR and Design) Scheme

Greening MSME: SIDBI has launched a programme called “Greening MSME” which provides financial assistance with a maximum limit of INR 20 crores to MSMEs to implement energy-efficient and environmentally sustainable technologies.

Note: The State Governments have the primary duty for the development and promotion of these small industries.

Challenges 

Shubham Gupta, Manager (Climate Finance), Climate Resilience Practice programme, World Resources Institute India discusses the following challenges :

Access to finance: It is one of the most significant issues for Indian MSMEs, with a total financing shortfall estimated to reach $400 billion. While bridging this gap may take much longer, targeted green finance schemes in key technologies and sectors such as waste management, electric vehicles, energy efficiency, and renewables can help MSME growth in these areas.

Interest rates: By lowering interest rates and making consumer finance, housing loans, and vehicle loans easily accessible to consumers, the Central Government should act to boost demand in the market.

Climate commitments and transitioning to low-carbon: The only thing small enterprises can do is follow the applicable environmental regulations. Even as the global demand and supply chains quickly migrate to greener, environmentally friendly processes and products while capitalising on newly created business opportunities, there is no strategic plan to enable MSMEs to deal with transition risks.

Unorganised nature: As a result of its fragmented structure and small-scale businesses (almost all Indian MSMEs are micro-sized), the sector is one of the most susceptible in the country’s economy. This vulnerability has been brought to light by the COVID-19 pandemic, as it is estimated that millions of MSMEs will have to close their doors due to decreased demand brought on by the lockdown.

Green transition of MSMEs: It is necessary to acknowledge that their exposure to policy and demand uncertainties is greater on the downside than on the upside. Even if they understand the commercial case for going green, the majority of them are too financially and technically limited to invest in new actions. Nonetheless, some government initiatives can help remove current obstacles.

Incentives and penalties: Small and Medium Enterprises (SME) behaviour might be encouraged to go beyond simple compliance by taxing negative externalities and providing subsidies or tax breaks for green expenditures. Updating environmental legislation can also take into account the hazards that various industries provide. Before being widely enforced, these policies must first be evaluated for their effect on MSMEs.

Way ahead

Ranjana Das in her Opinion column for The Indian Express (How MSMEs can benefit by adopting sustainable practices)  suggests:

(i) MSMEs should adopt good practices such as including low energy strategies, adopting renewable, waste management, safety of women, and timely wage payment.

(ii) Governments, business groups, civil society organisations, and other stakeholders can take an active role in raising awareness, sharing best practices, and offering training and resources. Governments and investors can provide financial incentives, such as tax breaks, subsidies, grants, and low-interest loans, to encourage MSMEs to adopt sustainable practices or invest in sustainable technologies.

(iii) Larger firms can help MSMEs implement sustainable practices by providing training, technical assistance, and financing.

(Sources: mospi.gov.in, msme.gov.in, Greening MSMEs by Shubham Gupta, How MSMEs can benefit by adopting sustainable practices by Ranjana Das)

https://www.youtube.com/watch?v=XhtsI_VXavI?si=koiKMaXQcfJ2t5_q