This article throws light upon the four arguments favouring small industries:- 1. Employment Argument 2. Decentralisation Argument 3. The Latent Resources Argument 4. Social and Political Arguments.

1. Employment Argument:

Small-scale industries will generate more employment with less capital investment. They operate according to labour- intensive methods and hence create higher promotion of employment per unit of capital invested. In large enterprises, investments in fixed assets like plant and machinery would be higher compared to the units of output produced there under.

In smaller enterprises simple machines and tools involve lesser capital outlay and importance is given to human skill and effort on wider basis and in diversified directions. Hence with Tow capital intensity, more persons would be drawn into employment in small firms.

2. Decentralisation Argument:

Small industries can be more easily decentralised than large industries, Hence the need is to initiate a drive to ‘spread out’ industries into small towns and villages. It is, however, essential to build the requisite infrastructure for stimulating the sustained growth of small-sized units away from metropolitan areas.


External economies in the form of regular supplies of raw materials, marketing facilities, communication facilities, credit facilities, etc. are to be created to develop towns and villages as ‘regional centres of industry’.

3. The Latent Resources Argument:

This is the most vital argument for development of small industries on priority basis. This argument suggests that small industries would bring out the latent reserves of resources and tap them profitably. Here resources refer to hoarded wealth and hoarded entrepreneurial skills.

There are large numbers of small entrepreneurs and employers who have the capacity-given suitable opportunity and assistance to manage productively efficient firms. It is also argued that there are larger number of potential entrepreneurs whose latent abilities are to be tapped by fostering the growth of small enterprises.

There are reserves of idle savings in the form of gold, precious metal, excessive land etc. These could be drawn into productive use if the hoarders of these savings are given a chance to set up business on their own account.


It is therefore necessary to attract new entrepreneurs to set up units in areas where supply is inadequate. Proper environment should be created to motivate the latent entrepreneurs to come forward to initiate suitable industrial units on viable lines. Latent talents will manifest in localised industries their efficient management and in their perspective growth.

4. Social and Political Arguments:

From the socio-economic point of view, it is argued that small enterprise would bring about greater degree of ‘equality’ in incomes, wealth and incomes generated therein would also be limited.

It will not be possible for a single firm or a few firms to corner the wealth of the community. Since units are scattered over wider areas and are owned by numerous independent entrepreneurs, the wealth and income would be distributed equitably.

Disparities in income will be narrowed if small enterprises are developed on productive lines in varied fields all over the country. It should however be noted that the total volume of savings will be smaller in small enterprises compared to larger enterprise.


Low savings lead to low capital formation which may block the further expansion of the enterprise. Lack of financial dynamism is the result of equality or equity in the distribution of incomes. Hence capacity to plough back their profits is limited in small enterprises.

Further, wages and other service conditions in small enterprises will also be lower and less attractive compared to those paid in large enterprises. This would widen disparities between earning of ‘small-factory’ workers and ‘large-factory’ workers. This can be mitigated by enforcement of Minimum Wages Act, Factories Act, Social Securities legislation in smaller enterprises.

Small enterprises with institutional assistance and legal safeguards reduce the scope for economic exploitation of workers. Similarly, small enterprises are the greatest protection against rise of monopolies, objectionable trade and pricing practices detrimental to the interests of consumers. Intimate touch with workers and consumers would help in formulation of conducive business policies of small firms.

Politically small enterprises serve the cause of democracy. Small enterprises which generate self-employment would lead to rise of independent-minded citizens.


Existence of large number of self-employed persons running the small units would guarantee the stability of political system especially the democratic institutions in the country.

As the Karve Committee observed “the principle of self-employment is as important to successful democracy as that of self-government.

Democratisation of economic and political power is a boon small-scale sector.