UNIT-4

Service Sector

The service sector, also called tertiary sector, is the third of the three traditional
economic sectors. The other two are the primary sector, which covers areas such as farming,
mining and fishing; and the secondary sector which covers manufacturing and making things.

Introduction
The services sector is not only the dominant sector in India’s GDP, but has also attracted
significant foreign investment flows, contributed significantly to exports as well as provided
large-scale employment. India’s services sector covers a wide variety of activities such as trade,
hotel and restaurants, transport, storage and communication, financing, insurance, real estate,
business services, community, social and personal services, and services associated with
construction.
Market Size
The services sector is the key driver of India’s economic growth. The sector contributed around
66.1 per cent of its Gross Value Added growth in 2015-16, thereby becoming an important net
foreign exchange earner and the most attractive sector for FDI (Foreign Direct Investment)
inflows.! As per the first advance estimates of the Central Statistics Office (CSO), the services
sector is expected to grow at 8.8 per cent in 2016-17.
According to a report by leading research firm Market Research Store, the Indian
telecommunication services market is expected to grow by 10.3 per cent year-on-year to reach
US$ 103.9 billion by 2020.
The Indian digital classifieds industry is expected to grow three-fold to reach US$ 1.2 billion by
2020, driven by growth in horizontal classifieds like online services, real estate and
automobiles.#
Out of overall services sector, the sub-sector comprising financial services, real estate and
professional services contributed US$ 305.8 billion or 20.5 per cent to the GDP. The sub-sector
of community, social and personal services contributed US$ 188.2 billion or 12.6 per cent to the
GDP.
Investments
The Indian services sector which includes financial, banking, insurance, non-financial/business,
outsourcing, research and development, courier and technical test analysis, has attracted the
highest amount of FDI equity inflows in the period April 2000-December 2016, amounting to
about US$ 58.345 billion which is about 17.99 per cent of the total foreign inflows, according to
the Department of Industrial Policy and Promotion (DIPP).
Some of the developments and major investments by companies in the services sector in the
recent past are as follows:

 FM Logistic Asia, outlined plans of investing around EUR 50 million (US$ 56.14
million) in India in the next four years, to contribute to a better efficiency of logistics
market in the country.
 Caisse de Dépôt et Placement du Québec (CDPQ), Canada’s second largest pension fund,
plans to invest around US$ 155 million to acquire a minority stake in TVS Logistics
Services Limited, a privately held subsidiary of the TVS Group.
 WNS Global Services has made an announcement to acquire Denali Sourcing Services
for US$ 40 million, with the aim of improving its sourcing and procurement capabilities.
 Samsung India has expanded its service network to over 6,000 talukas across 29 states
and seven union territories in India, by introducing over 535 service vans equipped with
engineers, key components, diesel generator (DG) sets and key equipment, for providing
quick response and on-spot resolution.
 Uber Technologies Inc plans to launch UberEATS, its food delivery service to India, with
investments made across multiple cities and regions, as per Mr Allen Penn, Head, Asia-
Pacific, UberEATS.
 International Finance Corporation (IFC), the investment arm of World Bank, plans to
invest around US$ 10 million Bengaluru-based online freight-booking service provider
Zinka Logistics, which will be used to expand Zinka's service offerings and further
technology development.
 Reliance Jio Infocomm Ltd. and Uber have announced a strategic partnership, which will
enable Uber riders to pay for their rides using JioMoney.
 The domestic and foreign logistic companies are optimistic about prospects in the
logistics sector in India, and are actively making investments plans to improve earnings
and streamline operations.
 Online food ordering and delivery service firm Swiggy, owned by Bundl Technologies
Private Limited, has raised US$ 15 million in a fresh funding round led by Bessemer
Venture Partners along with existing investors SAIF Partners, Norwest Venture Partners,
Accel Partners, and Apoletto Asia.
 Factset, a US-based financial data and analytics firm, plans set up its largest global office
at Divyasree Orion Special Economic Zone (SEZ) in Gachibowli, Hyderabad.
 LogixHealth Private Limited, a wholly-owned subsidiary of LogixHealthInc, USA, plans
to invest around US$ 15 million and hire 1,000 people for its upcoming facility in
Coimbatore.
 Meru Cab Company Pvt Ltd, the Mumbai-based radio cab service, has raised Rs 150
crore (US$ 22.37 million) from Brand Capital, the investment arm of Bennett Coleman
and Co, which will be used to fund advertising and provide user incentives including
discounts and loyalty schemes.
 SSG Capital Management Group, a Hong Kong based Private Equity (PE) investor, has
acquired a 40 per cent stake in the logistics company Future Supply Chain Solutions
(FSC), for Rs 580 crore (US$ 86.5 million) from existing shareholders including Future
Retail (FRL) and Fung Group, promoted by billionaire Victor Fung.
 Vistra Group Ltd, a Hong Kong-based professional services provider, has acquired
IL&FS Trust Company Ltd, India’s largest independent corporate trust services provider,
which will enable Vistra to expand the platform to provide a broader suite of corporate
and fiduciary services and thereby gain a foothold in the Indian corporate services
market.
 IcertisInc, a contract management software maker for enterprises based out of Pune and
Mumbai in India, has raised US$ 15 million in series B round of funding from Ignition
Partners and Eight Roads Ventures, which will be used to invest in marketing and expand
its global operations.
Government Initiatives
The Government of India recognises the importance of promoting growth in services sectors and
provides several incentives in wide variety of sectors such as health care, tourism, education,
engineering, communications, transportation, information technology, banking, finance,
management, among others.
Prime Minister Narendra Modi has stated that India's priority will be to work towards trade
facilitation agreement (TFA) for services, which is expected to help in the smooth movement of
professionals.
The Government of India has adopted a few initiatives in the recent past. Some of these are as
follows:

 The Ministry of Electronics and Information Technology has launched a services portal,
which aims to provide seamless access to government services related to education,
health, electricity, water and local services, justice and law, pensions and benefits,
through a single window.
 The Government of India plans to significantly liberalise its visa regime, including
allowing multiple-entry tourist and business visas, which is expected to boost India's
services exports.
 Mr Ravi Shakar Prasad, Minister of Communication and Information Technology,
announced plan to increase the number of common service centres or e-Seva centres to
250,000 from 150,000 currently to enable village level entrepreneurs to interact with
national experts for guidance, besides serving as a e-services distribution point.
 The Central Government is considering a two-rate structure for the goods and service
tax(GST), under which key services will be taxed at a lower rate compared to the
standard rate, which will help to minimize the impact on consumers due to increase in
service tax.
 The Reserve Bank of India (RBI) has allowed third-party white label automated teller
machines (ATM) to accept international cards, including international prepaid cards, and
has also allowed white label ATMs to tie up with any commercial bank for cash supply.
Characteristics:
The defining characteristics of a service are:
i. Intangibility:
Services are intangible arid do not have a physical existence. Hence, services cannot be touched,
held, tasted or smelt. This is the most defining feature of a service and that, which primarily
differentiates it from a product. Also, it poses a unique challenge to those engaged in marketing a
service as they need to attach tangible attributes to an otherwise intangible offering.

ii. Heterogeneity/Variability:
Given the very nature of services, each service offering is unique and cannot be exactly repeated
even by the same service provider. While products can be mass produced and be homogenous
the same is not true of services. For example, all burgers of a particular flavour at McDonalds are
almost identical. However, the same is not true of the service rendered by the same counter staff
consecutively to two customers.

iii. Perish ability:

Services cannot be stored, saved, returned or resold once they have been used. Once rendered to
a customer the service is completely consumed and cannot be delivered to another customer. For
example, a customer dissatisfied with the services of a barber cannot return the service of the
haircut that was rendered to him. At the most, he may decide not to visit that particular barber in
the future.

iv. Inseparability/Simultaneity of production and consumption:

TWs refers to the fact that services are generated and consumed within the same time frame. For
example, a haircut is delivered to and consumed by a customer simultaneously unlike, say, a
takeaway burger, which the customer may consume even after a few hours of purchase.
Moreover, it is very difficult to separate a service from the service provider, e.g., the barber is
necessarily a part of the service of a haircut that he is delivering to his customer.

Classification/Types of Services:
The United Nations (UN) classification of the service sector activities includes the following
sub-sectoral distinctions identified under it:
i. Electricity, gas and water;

ii. Construction;

iii. Wholesale and retail trade;

iv. Transport, storage and warehousing;

v. Post and telecommunications;

vi. Financial institutions;

vii. Insurance;

viii. Real Estate;

ix. Business services;

x. Rental and leasing of machinery and equipment;

xi. Public administration and defence;

xii. Sanitary and social services;

xiii. Community services including education, research, scientific institutions, medical,

professional and labour associations, radio and television broadcasting, entertainment services;
and

xiv. Personal and household services.

ENTERPRENEURIAL SERVICES

An entrepreneur is an individual who, rather than working as an employee, runs a small

business and assumes all the risks and rewards of a given business venture, idea, or good or
service offered for sale. The entrepreneur is commonly seen as a business leader and innovator of
new ideas and business processes.

Entrepreneurs play a key role in any economy. These are the people who have the skills and
initiative necessary to take good new ideas to market and to make the right decisions that lead to
profitability. The reward for taking the risk is the potential economic profits the entrepreneur
could earn.

Entrepreneurship has traditionally been defined as the process of designing, launching and
running a new business, which typically begins as a small business, such as a startup company,
offering a product, process or service for sale or hire. The people who create these businesses are
called 'entrepreneurs'. It has been defined as the "...capacity and willingness to develop, organize,
and manage a business venture along with any of its risks in order to make a profit".

CHARACTERSTICS OF AN ENTREPRENEUR

1. Motivation
Entrepreneurs are enthusiastic, optimistic and future-oriented. They believe they’ll be
successful and are willing to risk their resources in pursuit of profit. They have high
energy levels and are sometimes impatient. They are always thinking about their
business and how to increase their market share.

2. Creativity and Persuasiveness

Successful entrepreneurs have the creative capacity to recognize and pursue
opportunities. They possess strong selling skills and are both persuasive and
persistent.

3. Versatility
Company workers can usually rely on a staff or colleagues to provide service or
support. As an entrepreneur, you’ll typically start out as a “solopreneur,” meaning
you will be on your own for a while. You may not have the luxury of hiring a support
staff initially. Therefore, you will end up wearing several different hats, including
secretary, bookkeeper and so on. You need to be mentally prepared to take on all
these tasks at the beginning.
4. Superb Business Skills
Entrepreneurs are naturally capable of setting up the internal systems, procedures and
processes necessary to operate a business. They are focused on cash flow, sales and
revenue at all times. Successful entrepreneurs rely on their business skills, know-how
and contacts. Evaluate your current talents and professional network.

5. Risk Tolerance
Launching any entrepreneurial venture is risky. You can reduce your risk by
thoroughly researching your business concept, industry and market. You can also test
your concept on a small scale.

6. Drive
As an entrepreneur, you are in the driver’s seat, so you must be proactive in your
approaches to everything.

7. Vision
One of your responsibilities as founder and head of your company is deciding where
your business should go. That requires vision.
8. Flexibility and Open-Mindedness
While entrepreneurs need a steadfast vision and direction, they will face a lot of
unknowns. You will need to be ready to tweak any initial plans and strategies. New
and better ways of doing things may come along as well.

9. Decisiveness
As an entrepreneur, you won’t have room for procrastination or indecision. Not only
will these traits stall progress, but they can also cause you to miss crucial
opportunities that could move you toward success.
 EMERGENCE AND FUTURE PROSPECTS OF
ENTREPRENURIAL SECTOR IN INDIA

In India, business was traditionally considered to be the domain of scholarly challenged

individuals or the result of natural inheritance within business communities. Gradually, the
appetite for risk and the acceptance of failure increased, but only recently have alternate
professions and the idea of "following one’s dream" gained approval. In particular,
entrepreneurship caught the fancy of the Indian middle class after the economy was liberalized.
The economic reforms introduced in 1991 reduced the bureaucratic controls, promoted private
enterprise, and lowered the barriers to creating new businesses.

Government Support
Traditionally, government programs, and support from the banking and finance industry, were
largely focused and aligned to the manufacturing sector with its strong product focus. Industry
associations such as the Confederation of Indian Industry (CII), the Federation of Indian
Chambers of Commerce and Industry (FICCI) and the Associated Chambers of Commerce and
Industry of India (ASSOCHAM) have existed since the pre-independence era and lobby the
government for policy initiatives that favour traditional businesses and industries. With the
information technology sector emerging as a rapidly growing segment of Indian industry the
National Association of Software and Services Companies (NASSCOM) was formed in 1988 as
the industry association for information technology industry.
In 2000, the National Science & Technology Entrepreneurship Development Board (NSTEDB) –
under the aegis of the Department of Science and Technology (DST) – launched the Technology
Business Incubation (TBI) program, which is geared towards supporting entrepreneurship in
emerging technology areas such as information and communications technology, manufacturing,
biotechnology, nanotechnology, and agricultural technology.

The Government of India promoted and supported small and medium-sized enterprises (SMEs)
in India by establishing clusters across the country. District Industry Centres were established in
all major cities and towns of India. Cottage industries were established and promoted through
various support programs under the Khadi and Village Industries Commission. In 2006, the
Government of India established the Ministry of Ministry of Micro, Small & Medium
Enterprises (Ministry of MSME), which provides support in the form of infrastructure resources,
funds, training, and tax benefits.

Challenges and Opportunities

Data from the NASSCOM resource centre paints a clear picture of the emerging startup
ecosystem in India (NASSCOM, 2014):

 The number of technology startups has tripled in last six years, from about 1000 to 3000
startups.
 Two-thirds of entrepreneurs are less than 30 years of age.
 Health care, retail, and SMAC (social, mobility, analytics, and cloud) are the hot beds of
technology entrepreneurship.
 The number of angel investors has grown from 7 to 32 from 2006 to 2012 while the number
of venture capitalists has grown from 43 to 48 in the same period.

Thus, the entrepreneurial journey of an independent India has only just begun and the road ahead
is full of promise, provided that a favourable ecosystem continues to develop and give wings to
this fledgling trend. There is much to desire in terms of policy reforms and support system
available to entrepreneurs. However, numerous challenges and related opportunities remain and
can be summarized as follows:

1. Culture shift: India has experienced nearly two centuries of colonial influence followed by a
half century of socialistic policy leanings, and neither of these contexts favour free private
enterprise. The shift to an entrepreneurial culture is a recent phenomenon, which is yet to
transform the traditional middle-class mindset of business being "the refuge of the
incompetent and the unscrupulous" and of salaried jobs being a secure option in an uncertain
world. This culture is gradually changing with social acceptance of new alternatives and
growing appetites for risk. The shift to nuclear families and high mobility has also reduced
social pressures to conform. In most areas, the gaps are many and competition is limited,
hence a large opportunity exists for entrepreneurial initiatives.
2. Disparity: The entrepreneurial ecosystem is evolving every day with the birth of new
support agencies (both government and private initiatives) to meet the growing needs of
entrepreneurs; yet, it has a long way to go to address the needs of a country as large as India.
The rapid growth of a support system is concentrated in certain pockets of urban
development Centre’s, mainly in the technology hubs limited to metropolitan areas and
some state capitals. The distribution of facilities though uneven is fast spreading, and the
benefits of the developing economy are gradually percolating to the remote geographies and
to the demography at "the bottom of the pyramid" thanks to increased social
entrepreneurship. The equitable distribution of the benefits of economic growth and
development has caught the attention of many socially inclined entrepreneurs. Hopefully,
the glaring disparity in wealth distribution can be made less stark by providing an even
playing field.

3. Foreign influence: The growth of the Indian economy is service oriented with a heavy
dependence on export. The domestic demand is low due to stagnant primary and secondary
sectors of the economy. A huge spate of economic reforms are the need of the hour to boost
domestic agriculture and the industrial sector to create indigenous demand for services and
to develop the domestic markets. A heavy dependence on foreign economies makes growth
unstable and vulnerable to external uncertainties. That the need for this balance is being
recognized at different levels and that policy reforms for promoting the neglected sectors of
the economy are being initiated are good signs. A heavy investment in infrastructure
development and business-friendly regulations being planned to improve the country's
ratings in terms of the ease of doing business and to attract foreign direct investment and
foreign institutional investment, if successfully implemented, can open doors to new
possibilities for entrepreneurs.

4. Lack of success stories: The success of predecessors opens doors for those who follow.
India needs more entrepreneurial success stories to feed on and motivate the next generation
to embrace the difficult but rewarding entrepreneurial journey. Rags to riches success stories
of early Indian entrepreneurs associated with Infosys, Flipkart, Naukri, Makemytrip,
Biocon, Dr. Reddy's, Red Bus, and the like are giving rise to new hopes and aspirations in
 the masses. The blooming SME sector reflects the strength of a country's economic
ecosystem. India needs to recognize and reward its risk takers and promote entrepreneurs of
all hues as the growth engines of the economy. Having tunnel vision about what success
consists of and what is considered an achievement for an entrepreneur may restrict the
diversity of initiatives. The ecosystem needs to support all segments of entrepreneurial
effort without discrimination or bias for set categories. .

5. Social entrepreneurship: India suffers from inequitable distribution of wealth, with 42% of
its large population living below the international poverty line of $1.25 USD per day
(UNICEF, 2008). Many are still deprived of the benefits of economic growth and the
technology revolution. To achieve inclusive growth for all economic sections of the society,
another trend is social entrepreneurship, which aims to create enterprises that will impact the
lives at the bottom of demographic pyramid. For example, the penetration of mobile
technology to the remotest geographies and the lowest economic strata is proving to be the
most helpful tool in reaching out to this segment, and social entrepreneurship funds and
incubators are now available with exclusive focus on this sector. Incubators such as Villgro,
the Rural Technology and Business Incubator (RTBI),Periyar Technology Business
Incubator are exclusively focused in this area while others such as the Centre for Innovation
Incubation and Entrepreneurship (CIIE) and theDeshpande Foundation are increasing efforts
to identify scalable models in social enterprises. Funds such as Ennovent, Dasra, and UnLtd
India are trying to systematically invest in scalable social enterprises. Because there are
large gaps in this sector, the potential and scope for innovation is also high.

6. Funding: Although the traditional banking and financial industry has rules and regulations
that favour the industrial sector, which is more oriented towards secured debt, new equity-
investing arms are coming up in most public and private financial institutions to support the
service sector. Private seed and angel funding besides private equity and venture capital
funding are fast growing, primarily in funding technology ideas that have a shorter life cycle
and rapid scalability potential.
 ROLE AND FUNCTIONS OF COMMERCIAL BANK

Commercial Bank: A commercial bank is a financial institution that provides various financial
services, such as accepting deposits and issuing loans. Commercial bank customers can take
advantage of a range of investment products that commercial banks offer like savings accounts
and certificates of deposit. The general role of commercial banks is to provide financial services
to general public and business, ensuring economic and social stability and sustainable growth of
the economy. In this respect, "credit creation" is the most significant function of commercial
banks. The Banking function can be categorized in to two parts

1. Primary Function
2. Secondary Function

Primary Functions of Commercial Banks

Below are few very general functions of commercial banks, you must be familiar with all of
them. The first two functions of commercial banks are known as primary functions of
commercial banks and last two known as secondary functions of commercial banks.
1. Accept Deposits
The most important function of commercial banks is that it collects the surplus money or saving
of the people on accepting deposits. These deposits may be created in two ways, such as by
direct deposits, when a customer deposit their money in the bank by opening a bank account
such as current account, fixed account or saving account and secondly by indirect or derivative
deposits, which is credited by giving loans to their customers.
2. Advancing Loans
Next important functions of commercial banks are advancing loans to needy people at a rate of
interest against security. It is a profit making concern. The banks usually provide short-term
credit and avoid locking its funds for a long-period, because a major portion of the money
comprises of current and saving deposits, withdrawal on demand without notice. Commercial
banks issue the loan in the form of cash credit, overdraft, and fixed loans and by discounting of
bill of exchange.

Secondary Functions of Commercial Banks

1. Agency Services
The commercial banks provide agency services to its customers. It acts as agent to its customers
in the collection and payment of cheques, bill of exchange and promissory notes. The banks
provide a useful service in the collection of dividend or interest earned on stock and share held
by the customers. The bank purchases and sells the securities on behalf of his customers. Banks
also make payments of regularly recurring nature of individual or firm, dues by debiting of his
account, like insurance premium etc. A bank also acts as Trustee or Executor on the direction of
the customers. Banks also transfer funds of the customers from one bank to another bank at
home or abroad.

2. General Utility Services

Besides the main functions of commercial banks, they also perform many other services of
general utilities to its clients. A bank transacts in foreign exchange business by discounting
foreign bill of exchange and then financing foreign trade. A bank also acts as referee for “credit
worthiness” of its client. Bank provides “lockers” facility for keeping ornaments and other
valuable documents in a safe custody. Banks also issue “letter of credit” to the businessmen and
“travel’s cheque” to tourists. Banks create instruments of credit, a suitable substitute for money.
They encourage the habit of the savings, which ultimately result in investment and capital
formation. Bank also provides trade information by publishing monthly bulletin, which contain
information regarding to trade, commerce and industry. In a sentence, banks provide
indispensable services of general utilities.
Economic Significance/ECONOMIC Development

The economic significance of commercial banks is as given below;

1. Capital Formation
Capital formation is the basic requirement of country. It consists of three stages.

 Generation of savings
 Mobilization of savings
 Channelization of savings in productive uses

2. Investment in New Enterprises

The commercial banks provide capital to the entrepreneurs to take risk and invest in new
enterprises. The commercial banks thus help in increasing the productive capacity of the
economy.

3. Creators and Distributors of Money

The commercials banks are creators and distributors of money. They purchase securities and
allow money to play an active role in the economy.

4. Influencing Economic Activity

The commercials banks influence economic activity in two ways. First, the lowering of interest
rate makes the investment more profitable and increases in the interest rate discourages
investment. Secondly, the making of capital available to the investors increase investment,
production and trade in the economy and vice versa.

5. Effective Implementation of Monetary Policy

The control and regulation of credit by the central bank of the country is only possible and
effective with the cooperation of the banking system in the country.

6. Expansion in Trade and Industry

The use of cheques, drafts, bill of exchange etc by the banks, has lead to vast expansion in trade
and industry in all over the world.
7. Encouragement of Right Type of Industries
The banks advance short, medium and long term loans to the industrialists in accordance with the
loan policies of the government. Thus helps in promoting right type of industrialization in the
country.

8. Balanced Development
The banks play an active role in balanced development in different regions of the country. They
help in transferring funds from development regions to the less developed regions. The
undeveloped areas of eth country thus get adequate funds for development.

9. Development of Agricultural and Industry

The commercial banks, particularly in developing countries are providing short, medium and
long term loans for the development of agricultural and industries in rural and urban areas.

10. Reducing Reliance on Foreign Capital

A planned banking system in the country mobilizes savings and meets credits. Thus it results
more investment in the country and reduces relying on foreign capital.

Financial Institution:

Financial Institution is not a new concept in financial history. The evolution of financial
institutions must be differentiated from economic history and history of money. In Europe, it
may have started with the first commodity exchange, the Bruges Bourse in 1309 and the first
financiers and banks in the 1400-1600s in central and Western Europe. The first global financiers
the Fuggers (1487) in Germany; the first stock company in England (Russia Company 1553); the
first foreign exchange market; the first stock exchange.

In financial economics, a financial institution is an institution that provides financial services for
its clients or members. Probably the most important financial service provided by financial
institutions is acting as financial intermediaries. Most financial institutions are highly regulated
by government bodies. Broadly speaking, there are three major types of financial institution.

1. Deposit-taking institutions that accept and manage deposits and make loans;
2. Insurance companies and pension funds;
 3. Brokers, Underwriters and investment funds

Functions of financial institutions:

As we have already discussed that, there are numbers of financial institutions in financial market
like banks, credit unions, asset management pension providing institutions, risk management
institutions, which serve some purposes as follows:

1. Accepting Deposits
2. Providing Commercial Loans
3. Providing Real Estate Loans
4. Providing Mortgage Loans
5. Issuing Share Certificates

At the same time, there are several governmental financial institutions assigned with regulatory
and supervisory functions. These institutions have played a distinct role in fulfilling the financial
and management needs of different industries, and have also shaped the national economic
scene. Here is the list of various financial institutions.

1. Maharashtra State Financial Corporation

2. The State Industrial and Investment Corporation of Maharashtra Ltd
3. The Public/National Financial institutions
4. All nationalized banks
5. All scheduled banks
6. All co-operative banks
7. Regional Development corporations
8. Housing Development Finance Corporation
9. Export-Import bank of India

So these are the various financial institutions existing in India. All have their own contribution in
development of economy of India if we talk about that.
 ROLE OF SMALL SCALE INDUSTRIES IN ECONOMIC DEVELOPMENT

In a developing country like India, the role and importance of small-scale industries is very
significant towards poverty eradication, employment generation, rural development and creating
regional balance in promotion and growth of various development activities.

It is estimated that this sector has been contributing about 40% of the gross value of output
produced in the manufacturing sector and the generation of employment by the small-scale
sector is more than five times to that of the large-scale sector.

This clearly shows the importance of small-scale industries in the economic development of the
country. The small-scale industry have been playing an important role in the growth process of
Indian economy since independence in spite of stiff competition from the large sector and not
very encouraging support from the government.

The following are some of the important role played by small- scale industries in India.

1. Employment generation:

The basic problem that is confronting the Indian economy is increasing pressure of population on
the land and the need to create massive employment opportunities. This problem is solved to
larger extent by small-scale industries because small- scale industries are labour intensive in
character. They generate huge number of employment opportunities. Employment generation by
this sector has shown a phenomenal growth. It is a powerful tool of job creation.
2. Mobilization of resources and entrepreneurial skill:

Small-scale industries can mobilize a good amount of savings and entrepreneurial skill from
rural and semi-urban areas remain untouched from the clutches of large industries and put them
into productive use by investing in small-scale units. Small entrepreneurs also improve social
welfare of a country by harnessing dormant, previously overlooked talent.

Thus, a huge amount of latent resources ;re being mobilised by the small-scale sector for the
development of the economy.

3. Equitable distribution of income:

Small entrepreneurs stimulate a redistribution of wealth, income and political power within
societies in ways that are economically positive and without being politically disruptive.

Thus small-scale industries ensures equitable distribution of income and wealth in the Indian
society which is largely characterised by more concentration of income and wealth in the
organised section keeping unorganised sector undeveloped. This is mainly due to the fact that
small industries are widespread as compared to large industries and are having large employment
potential.

4. Regional dispersal of industries:

There has been massive concentration of industries m a few large cities of different states of
Indian union. People migrate from rural and semi urban areas to these highly developed centres
in search of employment and sometimes to earn a better living which ultimately leads to many
evil consequences of over-crowding, pollution, creation of slums, etc. This problem of Indian
economy is better solved by small- scale industries which utilise local resources and brings about
dispersion of industries in the various parts of the country thus promotes balanced regional
development.

5. Provides opportunities for development of technology:

Small-scale industries have tremendous capacity to generate or absorb innovations. They provide
ample opportunities for the development of technology and technology in return, creates an
environment conducive to the development of small units. The entrepreneurs of small units play
a strategic role in commercialising new inventions and products. It also facilitates the transfer of
technology from one to the other. As a result, the economy reaps the benefit of improved
technology.

6. Indigenisation:

Small-scale industries make better use of indigenous organisational and management capabilities
by drawing on a pool of entrepreneurial talent that is limited in the early stages of economic
development. They provide productive outlets for the enterprising independent people. They also
provide a seed bed for entrepreneurial talent and a testing round for new ventures.

7. Promotes exports:

Small-scale industries have registered a phenomenal growth in export over the years. The value
of exports of products of small-scale industries has increased to Rs. 393 crores in 1973-74 to Rs.
71, 244 crores in 2002-03. This contributes about 35% India's total export. Thus they help in
increasing the country's foreign exchange reserves thereby reduces the pressure on country's
balance of payment.

8. Supports the growth of large industries:

The small-scale industries play an important role in assisting bigger industries and projects so
that the planned activity of development work is timely attended. They support the growth of
large industries by providing, components, accessories and semi-finished goods required by
them. In fact, small industries can breathe vitality into the life of large industries.

9. Better industrial relations:

Better industrial relations between the employer and employees helps in increasing the efficiency
of employees and reducing the frequency of industrial disputes. The loss of production and man-
days are comparatively less in small- scale industries. There is hardly any strikes and lock out in
these industries due to good employee-employer relationship.
Of course, increase in number of units, production, employment and exports of small- scale
industries over the years are considered essential for the economic growth and development of
the country. It is encouraging to mention that the small-scale enterprises accounts for 35% of the
gross value of the output in the manufacturing sector, about 80% of the total industrial
employment and about 40% of total export of the country.