What is the Importance of Small Entrepreneurs in Indian Economy?

Small entrepreneurs play a very important role in the economic growth and development of Indian economy. Industrial Policy Resolution, 1956 states the importance of small scale industries as below:

“The small industries provide immediate large scale employment, they offer a method of ensuring a more equitable distribution of the national income and they facilitate an effective mobilization of resources of capital and skill which might otherwise remain unutilized”.

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The role and importance of small scale industries can be judged as follows:

(1) Employment generation:


Small entrepreneurs use labor intensive techniques and therefore provide employment opportunities on a large scale. Small entrepreneurs provide self employment to artisans, technically qualified persons and professionals.

Small entrepreneurs provide eight times more employment opportunities as compared to large scale industries.

The healthy growth of small scale industries can be an effective solution to the unemployment problem in India. Small entrepreneurs can be located anywhere and hence can provide employment to workers near their homes, more work for the under-employed.

Small scale sector accounts for nearly 75 percent of the total employment in the industrial sector. These industries also offer employment to farmers when they are idle.

(2) Optimization of capital:


Small entrepreneurs require less capital as compared to large scale units. Small scale sector can become a stabilizing force by providing high output ratio as well as high employment capital ration in a capital scarce economy like India.

Small scale units also provide quick returns on investment due to shorter gestation period. Small entrepreneurs help in capital formation by mobilizing idle and small scattered savings of people and put them into productive use by investing in small scale units.

(3) Balanced regional growth:

Small entrepreneurs promote decentralized development of industries. They help to remove regional disparities by industrializing rural and backward areas.

Dispersal of small industries in rural and semi-urban areas is the only means of balanced industrialization in all parts of the country.


Small entrepreneurs help to reduce the problems of congestion, slums and population in cities by providing employment and incomes in rural areas. They help to improve the standard of living in sub-urban and rural areas,

(4) Mobilization of local resources:

Small entrepreneurs help to mobilize and utilize local resources like small savings, entrepreneurial skill and talent, raw materials etc. In the absence of small business units these local resources are likely to remain unutilized.

These industries help to develop and promote traditional family skills and handicrafts. Therefore, these industries facilitate the effective user of local resources and generate employment opportunities and source of income for the local population.

(5) Export promotion:

There has been a substantial increase in exports from the small scale industries. Small entrepreneurs contribute about 35 percent to India’s total exports.

Small entrepreneurs also help in reducing the pressure on the country’s balance of payments, because these industries do not require import of sophisticated machinery or raw materials.

Small entrepreneurs earn valuable foreign exchange through increased exports. The value of exports from SSI sector has increased from only 393 corers in 1973-74 to Rs. 53.975 cores in 1999-2000.

(6) Consumer need satisfaction:

Small entrepreneurs are now producing a wide range of mass consumption items. Small entrepreneurs serve as an anti-inflationary force by providing goods for daily use on a large scale.

About one-half of the productivity of manufacturing sector in India comes from small scale and cottage industries. The value of output increase from Rs. 7200 corers in 1973-74 to Rs. 5, 72,887 corers in 1999-2000.

(7) Feeder to large scale industries:

Small entrepreneurs play a complementary role to large scale industries by providing parts, components and accessories. They act as ancillaries to large units.

(8) Social advantage:

Small entrepreneurs contribute towards the development of a socialistic pattern of society by reducing concentration of income and wealth.

They provide an honorable and independent living to people with limited resources. They facilitate wider participation of public in the process of development and thereby the cause of democracy and self-government.

(9) Equitable spread of income and wealth:

Small scale entrepreneurs ensure equitable distribution of income and wealthy by inculcating the spirit of entrepreneurship amongst people thereby providing them self employment with limited resources.

Ownership of small scale industries is widespread and offer more employment potential as compared to large scale units.

Small scale industries also ensure equitable spread of income and wealthy amongst all whereas large scale industries result in concentration of income and wealth in a few hands.

(10) Development of entrepreneurship:

Small entrepreneurs also help in developing a class of new entrepreneurs. The development of small scale industries contributes to increase in per capita income or economic development opportunities with relatively low capital investment, make effective use of untapped local resources, facilitates development of backward areas and weaker sections of society.

(11) Share in National economy:

Small entrepreneurs have made major contributions to Indian economy. Small scale sector has particularly emerged as a vibrant and dynamic segment of the economy.

It is a matter of great importance and pride that India has a distinct leading position of its own amongst the developing economies particularly in the sphere of small scale sector. The small entrepreneurs have shown tremendous growth in their number, production, employment and export.

It is evident from the above discussions that the small scale enterprises play a dominant role in employment generation, resource mobilization and utilization, income generation.

The growth of employment in this sector over years has been remarkable. The total value of production of small scale units comes to nearly 40 percent of the total industrial output of the country. There is a sharp increase in exports from this sector also.

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