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LITERATURE REVIEW
2.1 History of Small-Scale Industries
Global context: Historically, small-scale production (cottage industries, artisanal
crafts) has existed in every culture. Classical economies featured handicrafts and
local artisans fulfilling everyday needs. Over time, the term “small-scale industry”
emerged to denote enterprises with limited scale of operations (often defined by
investment, employment, or turnover). Post-Industrial Revolution, many
governments began distinguishing small manufacturers from large ones to provide
targeted support. For example, in the mid-20th century, various countries created
boards or policies for small industries (the literature notes such institutional support
in India and other economies)hilarispublisher.com.

Indian context: In India, traditional village and cottage industries (handicrafts,

khadi, handloom, etc.) formed the bedrock of local economies. During colonial rule,
many indigenous industries declined under competition from imported manufactured
goods. Following independence in 1947, the Indian government made the revival and
support of small industries a priority. The Industrial Policy Resolution, 1948
explicitly recognized the importance of “village and small
industries”hilarispublisher.com. In the early 1950s, multiple agencies were set up: for
example, five boards for handloom, handicrafts, coir, silk and village industries in
1952–53, and in 1954–55 the government established the Central Small Industries
Organization and the Small-Scale Industries Boardhilarispublisher.com. The first
working definition of small-scale industry was formalized then (based on power
usage, employment and capital)linkedin.com. Over subsequent decades, policies
(including reservations of products for small units, credit schemes, and cluster
development) nurtured the SSI sector. The 1970s saw the introduction of “tiny units”
category to capture very small enterprises. Eventually, the MSME Development Act
of 2006 provided a modern legal framework, subsuming all small and medium
enterprises under one heading. Thus, the historical literature shows a gradual
institutional evolution: from informal cottage trades to a heavily supported formal
MSME sector.

2.2 Concept of Small-Scale Industries

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 Small-scale industries (SSIs) or micro/small/medium enterprises (MSMEs) broadly
refer to businesses at the lower end of the size spectrum. Conceptually, these
enterprises are typically labor-intensive, serve local or niche markets, and have
limited capital investment. They exist in manufacturing (textiles, furniture, light
engineering) as well as services (repair shops, local trade, IT services) and in
modern tech-driven sectors (software start-ups, tech-enabled services, electronics
assembly). Key characteristics include owner-management (often family-run),
flexibility, and reliance on local resources. As one McKinsey report notes, MSMEs
range from one-person “mom-and-pop” shops to 250-employee manufacturing
firmsmckinsey.com. They provide entrepreneurship outlets and adapt quickly to
changing local demands.

2.3 Definitions
The precise definition of “small-scale industry” varies by country and context. In
India, the definition has evolved: originally based on fixed investment thresholds, it
was updated in 2020 to include turnover. Under the latest rules, a micro enterprise is
defined as one with investment in plant and machinery ≤ ₹1 crore and turnover ≤ ₹5
crore; a small enterprise has ≤ ₹10 crore investment and ≤ ₹50 crore turnover; and a
medium enterprise has ≤ ₹50 crore investment and ≤ ₹250 crore
turnoverrazorpay.comrazorpay.com. These criteria (Ministry of MSME 2020)
broadened eligibility without losing benefits for growing firms.
Globally, definitions differ. The World Bank generally classifies SMEs by number
of employees or turnover, with micro-enterprises typically having <10 employees,
small <50, and medium <300 in many studies. For example, the UN notes that
“MSMEs account for 90% of businesses, 60–70% of employment and 50% of GDP
worldwide.” (UN Observance of MSME Day). In practice, for this research, we align
with India’s MSME categories for domestic analysis, while using “SME” generically
for the global context.

2.4 Challenges and Growth in Literature

Much literature documents both challenges and growth of small enterprises.
Common challenges include finance (limited access to bank credit), technology
(outdated machinery, low digitization), infrastructure (poor power or transport in
rural areas), and skills (limited formal training)worldbank.orguschamber.com. For

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 instance, the World Bank reports that in developing countries around 40% of formal
MSMEs face credit constraints, leaving a finance gap of about US$5.2 trillion
annuallyworldbank.org. This financing deficit is reflected globally: Figure 1 shows
many regions where only a small share of small firms have bank loans.
On the growth side, literature highlights that MSMEs are engines of entrepreneurship
and resilience. Many studies note how digital technologies are empowering small
businesses. A US Chamber survey found 99% of small businesses use some digital
technology, and 40% use generative AIuschamber.com; moreover 81% plan to
increase their tech use. An Indian report found 64% of MSMEs sold products online
in 2020–21, boosting salesicrier.org. Sector-specific growth has also been
documented: for example, India’s Khadi and Village Industries (KVI) saw KVI sales
quadruple over a decade (to ₹155,673 crore in FY2023-24pib.gov.in), showing that
niche small industries can scale with support.

2.5 Research Gap

Despite extensive literature on MSMEs, gaps remain. Quantitative data on small
firms are often incomplete or outdatedsidbi.in, making trend analysis hard. Most
prior research focuses either on generic SME roles or on specific subsectors, with
few comprehensive cross-sectoral studies. There is also limited analysis of future
opportunities such as integration of industry 4.0 technologies or climate-smart
innovations in small industries. In India, formal data collection only began recently
with the Udyam portal, leaving historical comparisons challenging. This report aims
to fill such gaps by synthesizing data-driven insights on both traditional and modern
small industries globally and in India, identifying not just their current state but the
potential for growth under new economic trends.

2.6 Analytical Models and Frameworks

Researchers often apply strategic frameworks to small-scale industries. For example,
SWOT (Strengths, Weaknesses, Opportunities, Threats) analyses reveal inherent
strengths (flexibility, local knowledge) but weaknesses (limited scale). Porter’s Five
Forces has been used to show that small firms face strong competition and supplier
power issues, yet also benefit from niche differentiation. Value-chain and cluster
development models are common: small firms often cluster geographically (e.g.
textile hubs, artisan villages) and cluster models highlight the role of shared

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 infrastructure and joint marketing. Economic models of MSMEs also emphasize
spillovers: McKinsey notes that productivity improvements in large firms can “spill
over” to supplier SMEs (e.g. automotive parts clusters)mckinsey.com. While detailed
modelling is beyond scope here, these conceptual tools guide the interpretation of
small-industry dynamics.

2.7 Summary of Literature

In summary, the literature establishes that small-scale industries are crucial to
economies but face persistent constraints. Historical and policy analyses (especially
for India) show a consistent government focus on small industries since
independencehilarispublisher.comhilarispublisher.com. Contemporary studies
highlight their large contributions (roughly half of output and most employment
globallymckinsey.com, ~30% of GDP and 45% of exports in
Indiapib.gov.inpib.gov.in) but also serious challenges in finance and
productivityworldbank.orgmckinsey.com. Few studies, however, project how
evolving trends (digitalization, climate focus, global supply-chain shifts) will shape
the future potential of SMEs. This review motivates our data-driven analysis of
where small industries stand today and where opportunities lie.

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