In this article, You will read the Small Scale & Cottage Industry in India – for UPSC IAS.

Cottage Industry

  • Cottage industries or cottage manufacturing are also called household industries or rural industries or traditional industries. The artisans use local raw materials and simple tools to produce everyday goods in their homes with the help of their family members or part-time labour. Finished products may be for consumption in the same household or, for sale in local (village) markets, or, for barter. It is the smallest industry unit and it is different from small-scale industries.
    • For example, Pots making, bamboo basket weaving, fabric, mats, Curtain making, furniture making, Jewellery making of gold or silver.
  • Small Scale Industries are industries in which manufacturing, production, and rendering of services are done on small scale. The investment limit is up to Rs.5 crore while the annual turnout is up to Rs. 10 crores.
  • Cottage Industries are usually very small and are established in cottages or dwelling places. Khadi and Village Industries Commission (KVIC) is a statutory organization that promotes village industries that also helps cottage industries.
  • In Small scale industry outside labour is used whereas in cottage industries family labour is used. SSI uses both modern and traditional techniques. Cottage industries depend on traditional techniques of production.
  • If the Iron and Steel industry has helped India to move toward modernization of the economy, the cottage industry has helped to move towards balanced regional development and achieving the goal of an egalitarian society.
  • The cottage industry enjoys a special place in the Indian scenario owing to the highly diverse socioeconomic and geographical pattern. These go well with the Gandhian Philosophy for rural development. Owing to such a special place enjoyed by cottage industry in India development landscape, the Government of India has given it special benefits to glow from the plan after plan.
  • This industry, however, is facing a deep threats present in the wake of liberation, globalization and privatization since 1990, due to the economy of scale of larger firms producing the same goods owing to the philosophy of the current paradigm that mightier will survive.
cottage industry upsc
cottage industry

Rationale/Importance of Cottage Industry

  • Cottage industry enable an increased employment opportunities, which consequently leads to reduction in poverty and disparities.
  • This industry is considered as one of the most important means to balanced regional development of rural economy.
  • Cottage industry is also considered important for the women’s self-reliance as a major role in these industries is played by women both at the managerial and working levels.
  • These industries provide important allied services to big units. The big units cannot engage in the production of all their requirements such as spare parts, small tools, woollen products etc.
  • These industries are eco-friendly (handicrafts) and energy efficient with low levels of emission unlike the big units.
  • These industries well utilize the local skills. Many of these traditional skills attain importance in wake of their uniqueness.
  • Cottage industry involves less capital requirements.
  • Cottage industry has reduced pressure of population on agriculture as most these industries are located in villages and small towns. Thus these help in diversification of rural economy.
  • These industry hold high export potential, if tapped properly. The traditional unique and environment friendly products of these industries have high global demand.

Composition of Cottage Industry

  • Handicrafts
  • Khadi/Cotton
  • weaving
  • Match industry
  • Poultry
  • Silk weaving
  • Bidi Making
  • Glass work
  • Toy making
  • Lock/Knife making
Composition of Cottage Industry

Location factors

Location factors can be classified on the basis of factors given in the table below

  • Physical factors
    • Climate
    • Terrain
    • Forest/vegetation
  • Human factors
    • Historical tradition
    • Market and technology
    • Transport
    • Technology
Physical factors
Jute products in West Bengal due to humid climatic conditions.Punjab & Haryana has food processing industries due to the presence of arable land.Tropical forests such as that of Western Ghats, Assam provides hardwood furniture Timber
Fruit processing in Himachal Pradesh due to cold climatic conditionsBrick making industry is
therein laterite soil regions
such as Barind plains in the west
Bengal, Highlands of western
The Foothills of the Himalayas has forests that provide the raw material for softwood furniture timber
Dry fruits in Kashmir/ Himachal Pradesh due to cold climatic conditionsHandicrafts industry in U.P,
Bihar is due to its plain
Bamboo regions of Assam, W.B, and Orissa have basket and furniture making industries.
Pickles, jam, squash in U.P and Punjab is due to Tropical climatic conditionsFish processing industry in Malabar region(Coastal regions)Andaman & Nicobar Islands have hard wood furniture (decorative) industry due to the presence of tropical forests.
Broad-leaved forests provide raw materials for bidi making industry
Human factors
Historical traditionMarket and technologyTransportTechnology
It includes specific skills transferred from generation
such as khadi, handicraft, silk
weaving, woollen shawls, woollen shawls, wooden
artefacts, lock making, crackers etc.
Cottage industries near urban centres have higher Technological levels and they cater to the needs of big units for
allied activities. Away from urban centres, there is poor market
access and these industries have lower growth.
Transport plays an important role in the location of cottage industry such as the location of cotton industries in Gujarat due to the presence of efficient transportation in the Mumbai-Gujarat region to carry raw materialsThe presence of small processing units such as that of dairy products near urban centres are due to the presence of technology which is necessary for efficient storage, processing and preservation.

Problems of cottage industry

  • Thank the incentives and encouragement given by the govt, the cottage industries sector has made substantial progress during the last three decades. But the development has not been commensurate with their potentialities or with the need of Cottage industries. Cottage industries are facing many problems today which are hindering their growth.
  • Due to competition from large factories, many artisans have abandoned their traditional occupation and become landless agriculture labourers. This is leading to the extinction of traditional knowledge-based industries.
  • Cottage industries are unable to compete with other sectors due to many reasons prevailing at the input, processing and output stage discussed below:
    • Input stage
      • Lack of availability of credit and finance: There is no timely, adequate and low-cost credit available to Cottage industries. Cottage industries have not been able to raise capital like large industries from Banks and financial institutions.
      • Infrastructural bottlenecks, especially power hampers productivity and efficiency of Cottage industries.
      • Procurement of raw material due to the inadequacy of funds hampers raw material availability to Cottage industries in India. This is accentuated by the reluctance of government agencies which is favouring large scale industries.
    • Processing stage
      • Traditional and obsolete technology hampers the cost competitiveness and productivity of industries. This prevents further expansion of the industry.
      • Under-utilization of potential due to various financial, technological and marketing constraints is hampering the growth of Cottage industries in India.
    • Output stage
      • Absence of marketing, availability of readymade markets and lack of brand names hamper their further growth.
      • Proper quality up-gradation, monitoring and facilitation by the government are not there for Cottage industries due to which the quality products are not available in the market with respect to Cottage industries which is hampering their growth.
      • Besides, the high incidence of sickness and non-recovery of dues hamper their operation and development.


  • Modern Techniques: There is an urgent need for implementation of techniques which not only enhances productivity but develops skills of the laborers and meets the requirements of the local market.
  • Banking Facilities: Rural Co-operatives and Rural Banks should be established and stabilized by the Government for advancing short-term loans on nominal interest.
  • Marketing Facilities: The adequate marketing facilities should be arranged for them, as sale of goods has now-a-days become as complicated an affair as production itself. The platform of e-commerce should be utilized which can expand market across all boundaries.
  • The artisans must be helped to get the best price of their goods. Frequent exhibitions should be organized to enable the artisans to show their art and industry.
  • Some of the schemes and measures taken by the Government for improving the condition of Cottage industries in India are discussed below:
    • Khadi & Village Industries Commission (KVIC):
      • The Khadi and Village Industries Commission (KVIC) is a statutory body established by an Act of Parliament (Khadi and Village Industries Commission Act of 1956). In April 1957, it took over the work of the former All India Khadi and Village Industries Board.
      • Functions: It is an apex organization under the Ministry of Micro, Small and Medium Enterprises, with regard to khadi and village industries within India, which seeks to – “plan, promote, facilitate, organise and assist in the establishment and development of khadi and village industries in the rural areas in coordination with other agencies engaged in rural development wherever necessary.”
  • Credit-related schemes:
    • Pradhan Mantri Mudra Yojana: Launched in April 2015 by the Prime Minister, the Mudra Yojana aims to enable Micro Finance Institutions (MFIs), Non-Banking financial institutions/Companies (NBFCs), Small Finance Banks, RBRs, Commercial Banks, Cooperative Banks, etc. to provide Low Rate Loans to eligible entities.
    • Priority Sector Lending: Sectors which the Government of India and Reserve Bank of India consider as important for the development of the basic needs of the country and are to be given priority over other sectors. The banks are mandated to encourage the growth of such sectors with adequate and timely credit through Priority Sector Lending. Sectors under Priority Sector Lending includes
      • Agriculture
      • Micro, Small and Medium Enterprises
      • Export Credit
      • Education
      • Housing
      • Social Infrastructure
      • Renewable Energy
      • Others.
    • Stand-up India scheme: Prime Minister Narendra Modi had launched the Stand-up India scheme in April 2016. This scheme is aimed at providing credit to Scheduled Caste (SC), Scheduled Tribe (ST), and women borrowers in the non-farm sector. The scheme is intended to promote entrepreneurship among SC/ST and women and further give a push to the government’s financial inclusion programme.
    • Skill development and Training related programs
      • Skill India Mission: Skill India Mission is a government scheme launched in 2015. It is an umbrella scheme that has many skilling schemes and programmes under it. The chief objective is to empower the youth of the country with adequate skill sets that will enable their employment in relevant sectors and also improve productivity. The chief objective of the Skill India Mission is to provide market-relevant skills training to more than 40 crore young people in the country by the year 2022.
      • Management Training Programmes: The basic objective of the Management Development Programme is to improve the productivity/profitability of existing entrepreneurs by upgrading their managerial decision-making capabilities and providing them with an insight into the latest developments in the area of industrial management, marketing management, financial management, inventory control, human resource development, information technology, and e-commerce, etc. to make them aware about emerging practices in the field of industrial management. Keeping in view the heterogeneity of their academic awareness the need for the inputs of scientific management various from place to place and person to person. Hence the orientation to management principles and practices becomes necessary.

Some of the cottage industries and their location

Cottage IndustryGeographical Region
Khadi UdyogThe central plain of India, Gujarat and MP
Oilseeds processing industryRajasthan, Western MP, Gujarat, Maharashtra.
Dairy industryPunjab, Haryana, West UP, Western MP, Rajasthan, Gujarat, Maharashtra
Potteries, Plaster of Paris, China clay itemsSouthern UP (between Allahabad and Mughalsarai Mirzapur, Churk, Chunar are major centres.
WoodcraftSouthern Karnataka, Uttaranchal, HP, J&K
Decorative items with the horns of animalsNorthern & Central Karnataka (Belgaum district)
Leather goodsTN, Karnataka, Maharashtra – many small tanneries throughout the country to meet local requirements.
Tribal cottage industries (baskets, mat-making, paper plate, wooden umbrellas, bidi making)Chhattisgarh, Jharkhand, Orissa
Stone sculpturing and stone-cuttingRajasthan
Precious stone cuttingJaipur in Rajasthan, Gujarat
Coir worksKerala, TN
Painting worksPimpri paintings of Orissa; Madhubani paintings of Bihar
Sericulture and silk textilesNorth-East India, TN, Karnataka, and some tribal regions of the country.
Wooden textile and carpet makingJ&K, HP, Tibetan refugee camps of the country; Bhadohi (UP)
Glass industryScattered all over; concentrated in Ferozabad
district and Naini of Prayagraj district of UP.
Gem cuttingSurat
PearlsSurat, Mumbai
Nirmal workAndhra Pradesh
Ivory carvingTrivandrum, Jaipur
Tendu industry – bidisMP,Orissa Maharastra, AP
Lac industry-medicine, wax, cosmeticsChota Nagpur region, MP, Orissa, Chhattisgarh
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As I am studying from home so this is One of the best source for my preparation

Gunjan choudhary

Best content .keep up the good work.thankyou so much


Thank you lotusarise team
You are providing us a quality material which helps a lot for aspirants preparing from their homes.