What Is Considered a Small Scale Industry? Definitions, Criteria, and Real-World Examples

When you hear the term small scale industry, you might picture a tiny workshop with three people making candles or stitching bags by hand. But that’s only part of the story. In reality, what counts as a small scale industry isn’t about how many people are there or how loud the machines are-it’s about official numbers, investment limits, and government rules. And those rules vary by country. If you’re running a small factory in Bristol, Pune, or Portland, you need to know exactly where you stand.

How Governments Define Small Scale Industries

There’s no universal definition of a small scale industry. What’s small in India might be considered medium in Germany. In the UK, the term isn’t used officially anymore-it’s been replaced by micro, small, and medium-sized enterprises (SMEs). But globally, especially in countries like India, Brazil, and South Africa, the term small scale industry still carries legal weight.

In India, for example, the Ministry of Micro, Small and Medium Enterprises (MSME) sets clear limits. As of 2025, a small scale manufacturing unit is defined by investment in plant and machinery:

• Up to ₹10 crore (about £95,000) in manufacturing
• Up to ₹5 crore (about £47,500) in services

That’s not about revenue-it’s about what you’ve spent on equipment, tools, and production hardware. So if you run a factory that makes metal brackets and you’ve spent £80,000 on CNC machines, presses, and tooling, you’re still in the small scale category. But if you just bought a £120,000 laser cutter, you’ve crossed the line.

What’s NOT Included in the Investment Calculation

Not everything you own counts. The government doesn’t include land, buildings, or office furniture in the investment limit. Only machinery and equipment directly used for production. So if you own a £200,000 warehouse, that doesn’t push you out of the small scale category. Same with computers, accounting software, or delivery vans-those are excluded unless they’re part of the production line.

This is a key detail many new entrepreneurs miss. They think buying a bigger building means they’re growing out of small scale. But it’s the machines that matter. A bakery with five ovens costing £75,000 is still small scale-even if it’s in a £500,000 building.

Real Examples of Small Scale Manufacturing

Let’s look at actual businesses that fit this definition:

• A workshop in Jaipur that makes handcrafted brass lamps using 12 manual lathes and 3 polishing machines-total investment: £65,000.
• A family-run factory in Kerala that produces herbal soaps in batches of 500 units per day, using 5 steam kettles, a filling machine, and a sealing unit-total investment: £42,000.
• A Bristol-based company that custom-makes brass door handles for historic homes, using two CNC machines and a polishing line-investment: £89,000.

All of these are small scale industries. They’re not startups. They’re not cottage industries. They’re real manufacturers with equipment, employees, and output-but they stay under the government’s investment cap.

Compare that to a medium-sized factory in Birmingham that runs 15 automated assembly lines with a total machinery cost of £1.2 million. That’s no longer small scale. It’s medium. And the rules change completely-tax benefits, loan eligibility, compliance requirements-all shift.

Why the Definition Matters

Being classified as a small scale industry isn’t just paperwork-it unlocks real benefits.

• Lower interest rates on business loans
• Exemptions from certain environmental inspections
• Priority in government tenders
• Subsidies for equipment upgrades
• Reduced compliance burden (fewer forms, less paperwork)

In India, small scale units get automatic credit guarantee support from the government. In the UK, while the term isn’t used, micro businesses (under 10 employees and under £2 million turnover) get access to the Start Up Loans scheme and reduced National Insurance contributions.

Miss the classification, and you might pay £5,000 more in annual compliance fees or lose out on a £20,000 equipment subsidy. It’s not about being small-it’s about being eligible.

Common Misconceptions

People often confuse small scale with low revenue or few employees. But a small scale industry can have 50 workers and make £2 million a year. What matters is the machinery investment.

Another myth: “If I grow, I lose my small business status.” That’s true-but only if you cross the investment limit. Many small manufacturers grow revenue by 300% over five years without buying new machines. They just work smarter-outsource packaging, hire freelancers, use shared warehouse space. As long as the machinery cost stays under the limit, they stay small scale.

And no, you don’t have to be a family-run shop. Many small scale industries are owned by private companies with multiple shareholders. It’s not about ownership structure-it’s about capital invested in production equipment.

What Happens When You Outgrow It?

There’s no shame in growing out of the small scale category. But when you do, things change fast.

Once you hit the investment ceiling, you lose:

• Access to government subsidy programs
• Lower interest rates on MSME loans
• Exemptions from some environmental and labor audits

But you gain:

• More credibility with banks and investors
• Ability to bid on larger government contracts
• More flexibility to raise equity or venture funding

Many businesses plan for this. They keep their machinery investment just under the limit for years, then make a deliberate upgrade-say, buying a new automated line-only after securing a long-term contract or investor funding. That way, they time their growth with financial support.

How to Check Your Status

If you’re unsure where you stand, here’s how to check:

1. List every machine, tool, or production unit you own for manufacturing.
2. Add up the original purchase price (not resale value) of each.
3. Exclude land, buildings, computers, and vehicles not used in production.
4. Compare your total to your country’s small scale limit.
5. Update your registration if you’re near the limit-don’t wait until you’ve crossed it.

In India, you can register online through the Udyam Portal. In the UK, you can check your SME status via the GOV.UK business size calculator. Most countries have a free online tool-use it.

Final Thought: It’s Not About Size-It’s About Strategy

Small scale manufacturing isn’t about being tiny. It’s about being smart. Many of the most profitable manufacturers in the world operate just under the small scale threshold. They avoid the red tape of bigger firms while still using modern tools and scaling output.

If you’re building something with your hands, your machines, and your team-stay within the lines. The benefits aren’t just financial. They’re freedom. Freedom to make decisions fast. Freedom to adapt without layers of approval. Freedom to keep your business yours.