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Role of Small Business in Indian Economy
Small scale industries are small in size but play a big role in the economic development of a developing country like India. India has adopted the ideal of a socialistic pattern of society with full employment balanced regional development and self-reliance as the major objectives.


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Small scale firms are helpful in the achievement of these goals in the following ways:

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 promote self-employment particularly among the educated and professional class. They also provide employment to agriculturists who remain idle during a part of the year. In fact, the healthy growth of small scale industries can be an effective approach to the pressing problem of unemployment in the country. Several empirical studies have revealed that the employment generating capacity of small scale industries in about in times more than that of the large scale industries.

2. Balanced Regional Development: small scale industries promote decentralized development and help to remove regional disparities in industrialisation. 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 decentralized 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. The Annual Surveys of industries reveal that fixed capital per employee in case of small scale industry was Rs. 3,706 as compared to Rs. 27,757 in case of large scale industry. Small firms also provide quick returns after their establishment on account of short gestation period. In India where the rate of capital formation is low, small scale industries are very suitable.

4. Mobilization of Local Resources: Small scale industries facilitate Mobilization and utilization of local resources and family skills which might otherwise remain talent or utilized. Small business promotes a new cadre of small entrepreneurs and self-employed and encourages local talent. The growth of small enterprises helps in tapping talent resources like entrepreneurial skills and small savings specially in rural areas. Small business helps to protect technical skills and handicrafts.

5. Exchange Earnings: Small scale industries help in reducing pressure on the country's balance of payments in two ways. First, they do not require imports of sophisticated machinery and equipment. Secondly, they earn valuable foreign exchange through exports of their products. The exports of small scale industries increased from Rs. 637 crores in 1975-76 to Rs. 2785 crores in 1985-86. Small scale sector accounts for 40 percent of the exports of non-traditional items and about 25 per cent of the country's total exports. About 90 per cent of its exports are of non-traditional items.

6. Egalitarian Society : Small scale industries help in reducing concentration of economic power in a 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. Benefits of small scale firms are derived by a wider population. A large part of the earnings is distributed among workers.

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 Advantage: Small scale units offer opportunity for an independent way of life to people with small means. They offer savings in social overheads like education, housing and medical facilities by taking industry nearer to the people. They help to raise per capita income an standard of living in the country. A system of widely diffused ownership permits wider participation of people in the process of economic development. Small scale sector provides a base for democracy, socialism and self-government.

At present there are about 16 lakh small scale units in India producing more than 500 times. The Seventh Fiver Year Plan envisages a growth rate of 10 per cent in the small scale sector. By the end of 1990 the production of small scale sector is expected to be Rs. 8,000 crores and employment 1.19 crore persons.

At current prices the total output of small scale sector in 198-87 amounted to Rs. 72,250 crores.

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