Why are Businesses at a Small-Scale Level Important to a Country's Economy?

Small-scale businesses manufacture and provide products and services on a smaller/micro level. Their capital investment is low and, their employees are generally from the local areas. Their turnover is also very low compared to large-scale businesses. Their goods generally consist of daily-use products.

These businesses play an important role in the development of the economy in countless ways. These industries foster local economies and help to keep the money close to them. People often talk about supporting or contributing to small/local businesses but most of them don’t know how the whole small-scale business sector helps a country’s economy.

Why are small-scale businesses important to a country's economy?

1. Generates Employment: One of the major issues every country faces is unemployment. Small scale businesses provide opportunities for entrepreneurs and create meaningful jobs. Small businesses use labor-intensive techniques, which means requiring a huge human force. It employs a lot of people reducing the unemployment problem to a great extent. According to Statista, “In the financial year 2020, the total number of MSMEs in the country was more than 63 million.”

2. Creates diversity in the Economy: Small scale businesses require low capital investment making it easier to set up. This makes it convenient for many people like small artisans to start their businesses using their unique skills and stand up against large corporations creating diversity in the economy and not letting large corporations create a monopoly.

3. Essential for local economies: Since local people set up small-scale businesses. Whenever a purchase is made from them, the money they get is most likely used to purchase something from someone in the neighborhoods or nearby areas, and the money is floating locally. This interdependency and support from the community help small businesses to survive and even thrive. 

4. Support Large Scale Industries: Small scale businesses play a huge role in supporting large-scale industries. Small scale businesses often produce small products that large industries can buy and use to make finished products, saving up their time and money to manufacture them from scratch. E.g. A small-scale business produces cotton and supplies it to a large-scale textile industry that makes it into a finished good like a shirt.

5. Promotes Women Growth:  Female entrepreneurship is a legitimate term now. More and more women are exploring their skills and putting them into small-scale businesses. We're far ahead of the times where men drove the markets. Women are taking leadership and are exploiting the flexibility of setting up small-scale businesses to make a name for themselves. Small-scale businesses are helping women grow and, thus, the national economy grows. Prime Minister’s Employment Generation Programme (PMEGP) has set up a scheme in which women entrepreneurs are covered under Special Category and are entitled to 25% and 35% subsidies for the project set up in urban and rural areas respectively, encouraging more women to start their businesses. According to Statista, “In the financial year 2020, over 26 million workers were female.

6. Promotes Exports in the economy: Small-scale businesses contribute to foreign exchange by exporting. Government supports these businesses by providing them with technological advances through various schemes and subsidies. According to SME Chambers of India, “MSMEs (Micro, Small, and medium enterprises) are the backbone of socio-economic development of our country. It also accounts for 45% of total industrial production, 40% of total exports, and contributes very significantly to the GDP.”

7. Increases Infrastructure in the country: These businesses are usually set up in rural areas which are not so developed. By setting up industries there, the infrastructure around the place is enhanced. Many activities performed in these businesses can help improve the overall living lifestyle in the place. According to Featherlite Evoma, Small Businesses Outputs contribute about 45% of the total Indian manufacturing output.

8. Equal Distribution of wealth: Large businesses have concentrated wealth and, only strata of the population get the benefits. Small scale businesses help distribute the wealth and income more evenly between all sections of society.

These were few reasons as to how these businesses are such an important part of the economy and how it contributes. These businesses are necessary for any economy to grow. 

If you open your Small-scale business, it provides you with flexibility that you don't get in your usual job. Statistics show that many young men and women are willing to give up their 9 to 5 jobs and take up small-scale businesses because of this reason. It also gives them a window to earn more money and explore their skills and creativity. 

Many young entrepreneurs have started small-scale businesses and turned them into multi-national companies. For example, Byju’s – The Learning App was a humble startup and today its founder is the 67th richest Indian. Small-scale businesses are truly a boon to the economy and the business owner.

For more such information, keep reading the amazing blogs, and you can even connect with us to become a part of this startup revolution at So, don't wait up, start or buy or invest in your small business and contribute to society and the economy. 



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