Small-Scale Industries (SSIs) have a highly important role to be enacted in the Indian economy as they are primarily answerable for employment generation, output, and exports. SSIs form the backbone of India’s manufacturing and service sector, primarily in rural as well as semi-urban areas. The Micro, Small, and Medium Enterprises (MSMEs), to which SSIs belong, together produce nearly 30% of India’s Gross Domestic Product (GDP) based on the data of the Ministry of MSME. The proportion reflects the dynamism, stability, and fulcrum role of the industry to propel inclusive economic growth of the country.
SSIs diversity and size are unimaginable. The Annual Report of the Ministry of MSME (2022–23) says that India has more than 63 million MSME units, and the majority of them are micro or small units. They are distributed across the textile, food processing, pharmaceutical, electronics, leather, handicrafts, and other industries. The industry as a whole gives employment to more than 111 million people, second only to agriculture in giving employment to people in India. What is more remarkable about SSIs is that they can create employment at a relatively low cost of capital and in scattered geographical areas, i.e., in economically backward regions.
Decentralization is one of the very characteristics of SSIs. The industries are clustered together, offering local employment and obviating the need for large-scale cityward migration. Tamil Nadu’s Tirupur (knitwear), Moradabad of Uttar Pradesh (brassware), and Punjab’s Ludhiana (hosiery and cycles) are all leading SSI clusters. Not only are the clusters beneficial to local economic growth but also for entrepreneurship and technology know-how spillover. Over 55% of SSIs exist in the rural economy, according to National Sample Survey Office (NSSO) statistics, which goes to show their contribution to industrialization in the rural economy as well as to economy diversification.
SSIs play a big role in manufacturing production as well as in exports. The sector makes contributions to approximately 45% of India’s manufacturing production, which goes to suggest their contribution towards the manufacturing industry. Second, they make contributions to a proportion less than 48% of India’s total exports, which include such categories as garments, gems and jewelry, leather, sports goods, and handicrafts. This kind of an export sector not only takes on a pivotal role in the foreign exchange arena but also the portrayal of Indian skill and craftsmanship at the world level. Such government initiatives such as “ZED Certification” (Zero Defect, Zero Effect) tend to improve the quality and competitiveness of these SSIs that produce goods for export. Small-scale industries are a major contributor to GDP, directly through production and indirectly by catering to large-scale industries.
SSIs are a crucial supply chain of large industries, particularly in the automobile, electronics, defense, and construction sectors. They provide inputs, machines, spares, and intermediate goods that feed the larger production process. Interdependence increases industrial efficiency, reduces costs, and improves the economy. The car parts industry led by small-sized industries is but one such illustration that goes far in establishing India’s image as an international motor manufacturing center. Entrepreneurship growth and financial integration are some of the other spaces where SSIs have a predominant economic impact.
Government schemes such as MUDRA (Micro Units Development and Refinance Agency) helped crores of small entrepreneurs through collateral-free lending. Over 39 crore MUDRA loans to the tune of ₹23.2 lakh crore have been sanctioned till March 2023, primarily for small businessmen. Similarly, initiatives like Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) and Stand-Up India have contributed to the credit disbursal, especially among women, SC/ST entrepreneurs, and first-generation entrepreneurs. This kind of financial ecosystem has facilitated thousands of small industries to be set up, thereby contributing to GDP growth. SSIs’ role in technology and innovation can by no means be downplayed.
With some exceptions, a majority of small business with meager resources have been the ones to first apply frugal and low-cost technology highly appropriate to home markets. The Government of India, the MSME Ministry Technology Centres, and a few incubation programmes are gearing up to extend technological know-how to SSIs. The use of digital technology, e-commerce websites, and cloud computing has also helped with the competitiveness of small industries at the national, as well as international level. Digital MSMEs have also been found to have better productivity, higher turnover, and better access to customers and suppliers. Additionally, SSIs are heavily a driver towards inclusive growth and social equality.
Their capacity to exploit surplus labor, create jobs for women, and offer avenues for dominated groups to enter the mainstream economy turns them into a valuable instrument of balanced development. The small-scale industry is also increasingly becoming gender equal, with nearly 20% of MSMEs now being headed by women, as per the Sixth Economic Census. Fostering such inclusive participation not only drives GDP numbers but also increases social cohesion of the economy. Self-help groups (SHGs), co-operatives, and rural entrepreneurs are borrowing the SSI model too in expanding economic inclusion at the grassroots level. Small-scale industries are playing a much more important role in environmental sustainability as well. Green practices such as renewable energy, waste recycling, and green procurement have been taken up by many SSIs.
Social harmony of the economy increases. The government’s clean and green manufacturing program under programs like “Sustainable Finance Scheme” is encouraging SSIs to switch to cleaner technology. With all the adversity of the scale and the expense, however, the green SSIs conversion can be a useful support to the climate agenda of India and ensure long-term growth within the economy. SSIs, wonderful as they are, are also plagued by problems which undermine their GDP contribution. Challenges such as access to finance being constrained, technology obsolescence, infrastructure bottlenecks, costs of regulatory compliance, and market competition restrain them from being productive and scalable.
The COVID-19 pandemic also severely affected this industry, with temporary shutdowns, furloughs, and liquidity crunches. However, Emergency Credit Line Guarantee Scheme (ECLGS) and Atmanirbhar Bharat Abhiyan provided relief of a much-needed nature, and most sub-sectors rebounded. Continuity of policy, improved infrastructure, ease of business, and digital upgradation would be required to build resilience and GDP contribution of the sector. Small industry is the strength of the Indian economy. Their contribution to GDP—directly through manufacturing, and indirectly through employment, exports, and local growth—is large and growing. Equipping SSIs with the new generation of tools, competitive strategies, and inclusive finance will be critical if India is to reach a $5 trillion economy. Their decentralised, labor-intensive, and innovative character places them ideally poised to lead inclusive and sustainable GDP growth. Such a sector is an economic imperative—creating a strong, balanced, and resilient India.
Prepared by
MD. Mujahid Irfan
Associate Professor,
Department of EEE, SR University, Warangal 506371, Telangana.
