The main social purpose of small business development in India is not the middle class expansion, but the poverty reduction through employment.
As the cornerstone of the middle class expansion, it is not a small business that has been chosen, but a small-scale industry as an important component of industrial development, as well as the employment and export increasing.
Thus, depending on the nature of the small industrial units, and, respectively, the problems they encountered, small-scale industry have been divided in two sectors.
The first sector is traditional (usually home-based) village and cottage industries and handloom industry, which is seen primarily as a large reservoir of employment, and in some of its segments – as a source of art (including jewelry) products (handicraft industry). It is basically a pre-capitalist and early capitalist sector of small-scale industry. With a strong oppression of the trade and usury capital and without government support, it cannot compete with imported products and those of Indian factories.
The second sector is a modern (usually mechanized) small-scale industry, representing mainly the capitalist system and using more or less modern production techniques. This part of the small-scale industry is regarded as the base for the industrial business expansion and increase of industrial production, with a relatively greater employment potential than the large factory industry.
Both small-scale industry sectors have considerable export potential.
Support for small-scale industry in India is done through a combination of measures.
Protection on small-scale industry on the market is implemented not only through the establishment of high import duties and import restrictions (from which primarily benefits large factory industry), but also by protecting against the competition of the latter.
In addition, the state requires large factory industry enterprises (particularly in the automotive industry) to buy a certain proportion of the required parts and components from small-scale industrial enterprises.
As with agricultural sector, small-scale industry, which had largely depended on usurious loan, was included among the priority projects of lending by commercial banks. In addition, to enhance the long-term loans of small-scale industry and coordinate all its funding streams, a special small-scale industry development bank was established.
Another form of state support for small-scale industry are the tax benefits. Most of the artisans and craftsmen are, in fact, exempted from direct taxes, as their income is below the taxable minimum. In addition, handicraft and small-scale industry benefits from reduced rates of excise duties and other indirect taxes, or the abolition of these taxes.
Thus, students, writing a research proposal on a small-scale industries, have to present the main idea of such policy in India. If something goes wrong, they are welcomed to use free research paper topics on the subject. There a lot of them on the Web, so there will not be any problem in finding them.
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