In most of the developing countries like India, Small Scale Industries (SSI) constitute an important and crucial segment of the industrial sector. They play an important role in employment creation, resource utilisation and income generation and helping to promote changes in a gradual and phased manner. They have been given an important place in the framework of Indian planning since beginning both for economic and ideological reasons. The reasons are obvious. 

The scarcity of capital in India severely limits the number of non-farm jobs that can be created because investment costs per job are high in large and medium industries. An effective development policy has to attempt to increase the use of labour, relative to capital to the extent that it is economically efficient. Small Scale Enterprises are generally more labour intensive than larger organisations. As a matter of fact, small scale sector has now emerged as a dynamic and vibrant sector for the Indian economy in recent years. It has attracted so much attention not only from industrial planners and economists but also from sociologists, administrators and politicians.

Scope of Small Scale Industry:

Defining small scale industry is a difficult task because the definition of small scale industry varies from country to country and from one time to the another in the same country depending upon the pattern and stage of development, government policy and administrative set up of the particular country. Every country has set its own parameters in defining small scale sector. Generally, small scale sector is defined in terms of investment ceilings on the original value of the installed plant and machinery. But in the earlier times the definition was based on employment. In the Indian context, the parameter are as follows. The Fiscal Commission, Government of India, New Delhi, 1950, for the first time defined a small-scale industry as, one which is operated mainly with hired labour usually 10 to 50 hands. Fixed capital investment in a unit has also been adopted as the other criteria to make a distinction between small scale and large-scale industries. This limit is being continuously raised upwards by Government.

The Small Scale Industries Board in 1955 defined, “Small-scale industry as a unit employing less than 50 employees if using power and less than 100 employees if not using power and with a capital asset not exceeding Rs 5 lakhs”. ‘The initial capital investment of Rs 5 lakhs has been changed to Rs 10 lakhs for small industries and Rs 15 lakhs for ancillaries in 1975. Again this fixed capital investment limit was raised to Rs 15 lakhs for small units and Rs 20 lakhs for ancillary units in 1980. The Government of India in 1985, has further increased the investment limit to Rs 35 lakhs for small-scale units and 45 lakhs for ancillary units. Again the new Industrial Policy in 1991, raised the investment ceilings in plant an machinery to ? 60 lakhs for small-scale units and Rs 75 lakhs for ancillary units. As per the Abid Hussain Committee’s recommendations on small scale industry, the Government of India has, in March 1997 further raised investment ceilings to Rs 3 crores for small-scale and ancillary industries and to Rs 50 lakhs for tiny industry. The new policy initiatives in 1999-2000 defined small-scale industry as a unit engaged in manufacturing, repairing, processing and preservation of goods having investment in plant and machinery at an original cost not exceeding Rs 100 lakhs.

 In case of tiny units, the cost limitation is up to Rs 5 lakhs. Again, the Government of India in its budget for 2007-08 has raised the investment limit in plant and machinery of small-scale industries to Rs 1.5 crores. An ancillary unit is one which is engaged or proposed to be engaged in the manufacture of production of parts, components, sub-assemblies, tooling or intermediaries or rendering services and the undertaking supplies or renders or proposes to supply or render not less than 50% of its production or services, as the case may be, to one or more other industries undertakings and whose investment in fixed assets in plant and machinery whether held on ownership terms or lease or on hire purchase does not exceed Rs 75 lakhs. 

For small-scale industries, the Planning Commission of India uses terms ‘village and small scale industries’. These include modern small-scale industry and the traditional cottage and household industry.