In 1955, the Village and Small-Scale Industries Committee, also called the Karve Committee, noted the possibility of using small-scale industries for promoting rural development.
A ‘small-scale industry’ is defined with reference to the maximum investment allowed on the assets of a unit. This limit has changed over a period of time.
In 1950 a small-scale industrial unit was one which invested a maximum of rupees five lakh; at present the maximum investment allowed is rupees one crore.
It is believed that small-scale industries are more ‘labour intensive’ i.e., they use more labour than the large-scale industries and, therefore, generate more employment.
But these industries cannot compete with the big industrial firms; it is obvious that development of small-scale industry requires them to be shielded from the large firms. For this purpose, the production of a number of products was reserved for the small-scale industry; the criterion of reservation being the ability of these units to manufacture the goods. They were also given concessions such as lower excise duty and bank loans at lower interest rates.