SMEs plays an important role in the economic development of a country. Their role in terms of production, employment generation, contribution to exports & facilitating equitable distribution of income is very critical. The SMEs broadly consists of:
1) The traditional cottage & household industries such as khadi & village industries, handicrafts, handlooms, sericulture and coir industries.
2) Modern SMEs.
The traditional village and cottage industries as distinguished from modern SMEs are mostly unorganized and located in rural ares and semi urban areas. They normally do not use power operated machines/appliances & use relatively lower levels of investment & technology. But they provide part time employment to a very large number of poorer sections of the society. They also supply essential products for mass consumption & exports.
The modern SMEs are mostly defined in terms of the size of investment & labour force. The industries (Development & Regulation) defines SMEs having less than 50 workers with the aid of power or less than 50 workers with the aid of power.
Government is extending various steps towards SMEs. In India, a unique instrument called reservation in the sense of legal ban on production by large units introduced in 1970s was for the safety and promotion of SMEs. In addition, the SMEs has been supported and encouraged by various government policies for infrastructure support, technology upgradation, preferential access to credit, preferential policy support, etc.
Specific contributions of Small Scale Sector:
1. The contribution of Small scale sector to the manufacturing sector and GDP as a whole is significant in terms of its share in total value added.
2. Small scale sector performs to the manufacturing sector and GDP as a whole is significant in terms of its share in total value added.
3. SMEs can play a role in mitigating the problem of imbalance in the balance of payment accounts through its export promotion.
4. While the large scale industries are expected to increase the inequities of income and concentration of wealth, SMEs are expected to help widespread equal distribution of income and wealth.
5. Small sector may provide opportunities to a large number of capable and potential entrepreneurs who are deprived of appropriate opportunities.
6. It can help to release scarce capital towards productive use.
7. SSI can reap the benefits of lean production and can find new cost-efficient techniques of lean production.
8. As small units can use resources more efficiently to the full capacity without any wastage, they may have higher allocative efficiency.
9. As the element of risk is minimum in SMEs, more resources will be employed by large number of labour force.