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written by | August 26, 2022

Meaning, Explanation, and Workings of the Cottage Industry

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The cottage industry is prominent in the rural and suburban areas of India and has contributed a lot to the economy of India. It has generated many employment opportunities in rural and sub-urban areas of the country. For many Indian households, cottage enterprises are the main source of income. Small scale cottage enterprises have the advantage of having very cheap startup costs, making them the perfect choice for peasants and those with limited incomes. Additionally, the raw resources needed to produce cottage industry goods are readily accessible in the area. The difference between cottage enterprises and small scale industries is merely marginal. The attributes of both industries, their locations, the people in charge of them, and other minor details make them essentially same but different. Let's explore this blog more to learn more.

Did You know? 

30th August has been celebrated annually in India as “National Small Industry Day” since 2000. It was the initiative of the Ministry of Small-Scale Industries to recognise the value of small businesses in the Indian Economy.

What are Cottage Industries?

Let’s start with understanding what the Cottage Industry is. A cottage industry is a group of small-scale businesses or manufacturing units managed by small family members from their home or sometimes a tiny establishment usually near home. The industry relies a lot on labour owing to a small investment in the business, which is insufficient to install a heavy manufacturing unit.

How does the Cottage Industry Work?

Now, It is time to know how this industry works in the Indian Economy. Unlike Modern manufacturing and service businesses that structure in companies or other corporate forms, cottage industry businesses are incorporated either in proprietorship or partnership. They are usually self- or family-managed, employing the family labourers and locally available talents from the establishment of the home with private resources. The equipment used in the industry is very simple, with little or no investment. 

Small Scale businesses are characterised by a small investment in equity and are usually self-managed by an individual or a family. These businesses are important in the country's rural areas and employ a large portion of the workforce.

Also Read:  Tips for Successful Money Management for Profitable Business  

Cottage and Small-scale Industries In India

Small-scale industries have played a vital role in the Indian economy and employment generation in India's rural and suburban areas. These industries not only play a crucial role in providing work but also help in building businesses in rural and backward areas, assuring more equitable growth and distribution of income and wealth. Cottage industries in India have contributed to the social development of the country. Here are a few of the points that could provide a lot of insight into the cottage industry - 

  • During 2016-17, the khadi and village industries generated employment opportunities for 136.40 lakh people and also recorded production and sales of ₹ 42631.09 crores and ₹ 52138.21 crores, respectively 2016-17 as per the Khadi and Village Commission(KVIC)
  • To facilitate the growth of the cottage Industry, any individual can avail credit from banks to set up a micro-enterprise in the non-firm sector up to 25 % of the cost of the project in the rural areas and 15 % in urban areas, and for some particular category, It can go up to 35 % under Prime Minister’s Employment Generation Program (PMEGP)
  • According to the Ministry of Rural Development, Jammu and Kashmir has the largest Small scale enterprises accounting for 32.78 % of total small-scale enterprises.
  • Cotton weaving, Silk weaving, Carpet making, and metal works are among the various work and account for almost 40 % of the total industrial output.
  • As per National Sample Survey Office (NSSO), the MSME sector has been creating 11.10 crore jobs in the rural and urban areas of the country.

Cottage Industry Examples in India

India is known for its diversified culture, with handicrafts from traditional cottage industries and a wide range, including cotton weaving, carpet weaving, silk weaving, leather industry, metal handicrafts, and minor food processing. Following are a few examples of a cottage industry -

  •     Cotton Weaving

Since the pre-independence era, cotton weaving has been prominent in the cottage industry. Cotton clothing was used to export outside India and was noted for its classic design, rich colour, and work of art and design created by Indian craftsmen rich in their vibrant colours. Maharashtra, Tamil Nadu, West Bengal, and Gujarat are a few of the prominent states in cotton production. 

  • Silk Weaving

Silk weaving is another well-known cottage industry in India. India is a key producer and exporter of silk, and Karnataka is the most important producer of silk, accounting for almost 70% of the total silk weaving industry.

  • Carpet Weaving

Carpet-weaving traces its presence from the Mughal Dynasty, and Kashmir accounts for one of the finest quality and texture in Carpets. The carpet business is spread over the country, mostly in Kashmir, Rajasthan, Punjab, Uttar Pradesh, and Andhra Pradesh. The Indian government has established the Carpet Export Council to promote the export of carpets in the international markets.

  • Leather Production 

India is a major leather exporter, accounting for 10% of the world’s total demand, and it employs close to 4 million people in India. In the leather products industry, women make up roughly 30% of the workforce. With 55% of the workforce under 35, India's leather sector has one of the youngest labour forces worldwide.The Indian leather industry handles a significant annual production of about 3 billion square feet of leather, or 12.93% of the world's total leather production of hides and skins. 

Also Read:  10 Cheapest Markets in India You Must Know 

Challenges faced by the Cottage and Small Scale Industry

Small-scale businesses usually face many challenges along with their growth. Here are a few of these problems -

  • Inefficient Disbursement of Loans

The government of India has introduced many schemes for extending loans facility to small businesses over the years, especially in rural areas. However, the chances of getting a loan are usually not favourable since banks and financial institutions ask for a lot of documentation that is not easy to arrange. Also, the small businesses have low equity investments, which do not provide strong security to the lending institutions.

  • Lack of Skilled Labour

Cottage industries rely a lot on the labour workforce and usually employ local talents. However, small businesses get the advantage of using labourers at a low cost due to the huge immigration of skilled labour to urban areas. A shortage of skilled labourers in cottage industries harms the growth of these businesses beyond their local limits.

  • Competition from Big Corporations and Imports

India is a huge market and home to nearly 130 crores of people. The small-scale businesses struggle to capture a large part of this market due to tough competition from Multinational corporations having an abundance of investment in skilled talents and resources. These corporations find it easy to place their products in the market.

  • Unavailability of Technology

Technological advancement is key to business success in this modern era of industrialisation, While big corporations take advantage of technology to grow and expand across the globe. Small business is far behind, and the Internet is the next technological revolution. Many rural areas lack good connectivity or are unavailable in the rural areas of northeast India and Bihar.

  • Lack of Resources and Infrastructures

Though India is connected mainly through roads to the rest of its villages, not every rural area is connected to the highways and every part of India. This place is a hurdle for small businesses to expand their products and goods to every corner of India. Likewise, Electricity has the highest reach in India, but frequent power cuts cause a loss of productivity for businesses.

  • Lack of Organisational Structure

Small-scale industries are usually managed by an individual who oversees operations and gives the business vision. In a nutshell, an individual is parted with everything in the industry and is responsible for all business outcomes. This type of structure prevents the industry from expanding further and scaling its operation, leading the industry to be exposed to only a small part of the market. The business could be at a huge risk if the market slows down.

Also Read: Top 10 Cities for doing business in India

Conclusion:

The Cottage industry is a huge source of employment for the workforce in India and has contributed a lot to the Indian Economy. The growth of small-scale industries has empowered many women to join the workforce, especially in India. These businesses employ more labour than giant corporations, and owing to this, the government, through various initiatives such as PMEGP, has tried to provide credit facilities to these businesses and has conducted various skills development programs to help the rural populations equipped with technology, modern production methods, business strategy, etc. This will help businesses grow and expand like big corporations.
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FAQs

Q: What are the various problems and challenges faced by Cottage Industries?

Ans:

There are various problems and challenges faced by the cottage and small-scale industries, such as a lack of skilled labour, competition from big corporations imports, lack of technological availability, lack of infrastructure, etc.

Q: What are the various examples of cottage industries (in) India?

Ans:

There are various examples of cottage industries like cotton weaving, silk weaving, carpet weaving, and leather production.

Q: What are the various Schemes of Government for developing Small and Cottage Industries?

Ans:

The government of India has launched various initiatives for the upliftment and development of small businesses like the Prime Minister’s Employment Generation Program (PMEGP), Pradhan Mantri Kaushal Vikas Yojana (PMKVY), etc.

Q: Under which statute are small-scale and cottage industries governed?

Ans:

Small scale and cottage industries are governed under the Micro, Small and Medium Enterprises Development Act, 2006, to protect the interest of Small businesses while dealing with the 3rd part.

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The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.