Q.What are the merits and demerits of small scale enterprises in Indian economy?

Small scale enterprises help India by creating large-scale employment with little capital, spreading income and industry to backward regions, using local resources and promoting entrepreneurship and exports. But they suffer from outdated technology, low productivity, finance and raw-material shortages, poor quality, marketing problems, sickness and weak management.

Small scale enterprises (now broadly covered under Micro, Small and Medium Enterprises, MSMEs) are units with small investment in plant and machinery. In a country with surplus labour and scarce capital like India, they are very important, which is why the AP Intermediate 2nd-year Economics course (aligned with the NCERT/CBSE commerce curriculum) examines both their strengths and weaknesses.

Merits of small scale enterprises:

1. Employment generation. They are labour-intensive and create a large number of jobs per unit of capital, which suits India's labour surplus.

2. Low capital requirement. They need little capital and can be set up with limited resources, making them accessible to small entrepreneurs.

3. Equitable distribution of income. By spreading ownership and incomes widely, they reduce concentration of economic power.

4. Balanced regional development. They can be located in rural and backward areas, reducing regional imbalance.

5. Use of local resources. They mobilise local savings, raw materials and skills that might otherwise remain idle.

6. Promotion of entrepreneurship. They encourage new entrepreneurs and the growth of indigenous skills.

7. Support to large industry and exports. They supply components and ancillary products to big industries and contribute significantly to exports.

Demerits of small scale enterprises:

1. Obsolete technology. Many units use old techniques, which lowers efficiency.

2. Low productivity. Small size and poor technology keep output per worker low.

3. Shortage of finance. They face difficulty in getting adequate and timely credit.

4. Poor quality. Limited resources often result in inferior product quality.

5. Marketing problems. They lack the resources to advertise, build brands and reach distant markets.

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