The generally accepted definition of a small business is that it is privately owned – usually a sole-proprietorship or partnership. They hire fewer employees and generate less revenue than larger corporations.
As per the revised definition shared by the Finance Minister, Nirmala Sitharaman, enterprises with an initial investment of up to 100 lakhs qualify as small businesses.
Small businesses have contributed significantly to the nation’s GDP and brought economic prosperity to the rural hinterland. Small businesses contribute a whopping 30% to India’s GDP. Their contribution to the country underscores the importance of small businesses in the Indian economy.
Small businesses have emerged more resilient from the headwinds they had the misfortune of facing due to the appearance of the pandemic in early 2020. The importance of small businesses in India came to the fore when they all but ceased functioning during the pandemic for a brief period.
The ceasing of operations had a cascading effect as millions were laid off and lost the capacity to earn, negatively affecting the demand for many products and services. The most adverse impact was on India’s GDP, which dropped nearly 25% in 2020 as per The Quint.
Some of the many benefits of small businesses are shared below:
Generates Employment:
Large swathes of people in India still inhabit rural areas, and as small businesses are labour intensive, they generate employment for the many people living in rural India.
The presence of small businesses helps inhibit migration from rural areas by providing the same employment opportunities and quality of life the migrants seek.
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Reduces Rural Migration:
Internal migration to urban areas is a common occurrence leading to the infrastructure of the cities getting overwhelmed and the smaller towns and villages emptying of their denizens.
The presence of small businesses helps inhibit migration from rural areas by providing the same employment opportunities and quality of life the migrants seek.
Fair Distribution Of Income:
Large-scale firms encounter logistical difficulties making it impossible for them to function in rural areas. And even when the situation allows, they find themselves limited to specific commercial zones, restricting the benefits provided by them from reaching most people.
Small businesses function on a limited scale, so they are easy to set up and less affected by the circumstances affecting bigger entities. Small businesses only look for rudimentary skills in the people they employ, thus making it easier to provide employment opportunities and promote fair income distribution.
Improve Living Standards:
It is natural for people living in rural areas to yearn for the living standards available in urban areas. Small businesses play a vital role in providing a means of livelihood, thus emphasizing the importance of small businesses to the economy.
Conclusion:
Encouraging small entrepreneurs is crucial in India, and the importance of small businesses in the Indian economy cannot be overstated if it is to find its place among the world’s developed economies. It would only bode well for the country to nurture this vast entrepreneurial ecosystem.
