1. Employment : Small scale firms use labour-intensive techniques and, therefore, they have high potential to provide employment to a larger number of people per unit of capital. For every worker employed in large scale industries, about three workers are engaged in small scale and cottage industries. Next to agriculture, small business constitutes the most popular occupation of people in India. Small firms prompt self-employment particularly among the educated and professional class. They also provide employment to agriculturists who remain idle during a part of the year.
2. Balanced Regional Development : Small industries promote decentralized development and help to remove regional disparities to industrialization. The development of small scale industries leads to industrialization in rural areas. Decentralized development contributes to the process of self-sustained growth and avoids concentration of industries in particular areas. By providing employment in rural areas, they help to check migration and overcrowding in urban areas. Small scale firms can be a useful means of rural reconstruction and development. Development of dencentralized sector also improves the standard of living of people in backward regions.
3. Optimization of Capital : Small scale firms require less capital per unit of output and, therefore, greater output can be obtained with small investment.
4. Mobilization of Local Resources : Small scale industries facilitate mobilization and utilization of local resources and skills which might otherwise remain talent or unutilized. Small business promotes a new cadre of small entrepreneurs and self-employed and encourages local talent.
5. Exchange Earnings : Small scale industries help in reducing pressure on the country’s balance of payment in two ways. Firstly, they do not require imports of sophisticated machinery and equipment. Secondly, they earn valuable foreign exchange through export of their products.
6. Egalitarian Society : Small scale industries help in reducing concentration of economic power in few hands. They promote a more equitable distribution of national income and wealth. Development of small scale industries helps to reduce monopolies and exploitation of consumers. Small industries help in raising the standard of living of the people living in rural areas. Benefits of small scale firms are divided by a wiser population.
7. Feeder to Large Industries : Small scale sector is complementary to the large scale industries. Small scale industries manufacture various types of components, spare parts, tools and accessories, which are required by the large scale sector.
8. Social Advantages : Small scale units offer opportunity for an independent way of life to people with small means. They offer savings in social overhead like education, housing and medical facilities by taking industry nearer to the people. They help to raise per capita income and standard of living in the country.
9. Feeling of inherent strengths of adaptability : Small industries have strengths of adaptability, personal touch and maintain good personal relations with both customer and employees.
2. The small scale industry can enjoy the status of an ancillary small industry if it supplies not less than 50% of its production to another industry, referred to as the parent unit.
Tiny unit :
1. Investment in plant and machinery is not more than Rs. 25 lakhs.
2. The small scale industry has no need to become tiny unit.
Features of Cottage industries :
1. These are organised by individuals, with private resources.
2. Normally use family labour and locally available talent.
3. The equipment used is simple.
4. Capital investment is small.
5. Produce simple products normally in their own premises.
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