CBSE Class 11 Business Studies Small Business Notes

SMALL BUSINESS

•  Introduction:

Small Business enterprises exist in e very country of the world. But in a developing country like India, they occupy a special place in the industrial structure because they provide better opportunities for generating employment, for better utilization of local resources, for equitable distribution of national income.

•  Meaning:

Small Scale Industry is one in which investment in plant and machinery does not exceed rupees one core.
An ancillary industrial unit is one which supplies not less than 50% of its output to another parental unit.

Export-Oriented unit is one which exports more than 50% of its output and wherein investment in plant and machinery does not exceed rupees one core. Small Scale Unit owned and managed by Women Entrepreneur is one in which women have a share capital of not less than 51%. Tiny Industrial unit is an enterprise having investment in plant and machinery of not more than Rs.25 laths. Micro Business unit is one where investment in plant and machinery of not more than Scone laky.

Village Industry means any industry located in a rural area which produces any goods, renders any service with or without the use of power and in which fixed capital investment per head does not exceeds Rs.50,000.

Cottage Industry refers to industrial units which are traditional rural industries located in residential premises and in which manual techniques and simple tools are used.

A business which operates on a small scale and required less capital, less laborand less machines is called small business. The goods are produces on a small scale. This business is operated and managed by the owner of the business. In India the village and small Industries sector consists of both traditional, Handlooms Handicrafts, coir, khadi and Village Industries. Modern small Industries - Small scale industries and Power looms.

A small scale enterprise according to MSMED Act, 2006 is defined as one where the investment in Plant and Machinery is more than 25 lacs but does not exceed Rs. 5 crore.

Several parameters can be used to measure the size of business. These include the number of persons employed in business, Capital invested in business, Volume of output of business and power consumed for business activities. The definition used by the Government of India to describe small Industries is based on the  investment in plant and machinery. It can be divided as follows :-

7. Village Industries               Investment               Location in Rural Areas Produces
                                           Worker per                any goods without the use of
                                           head power.
                                           Rs. 50,000/-
8. Cottage Industries             Not defined                Normally use family labour. Use
                                           by Capital                  Simple machine, use small capital.
                                           Investment

•  Role of Small Business in India (With Special Reference to Rural Areas)

√ Small industries provide employment opportunities in rural areas

√ They are the second largest employers of human resources

√ They contribute nearly 40% of the gross industrial value added

√ The development of village & rural industries leads to industrialization in rural areas

√ They ensure equitable distribution national income & wealth by reducing income inequalities between rural & urban areas
√ They help in mobilization & utilization of local resources & skills

√ They help generate multiple sources of income to the rural house holds

√ They prevent migrations of rural population to urban areas in search of employment 

1. Employment : Small scale Industries are second largest employers of human resources after Agriculture. It has 95% of the industrial unit in the country.

2. Variety of product : Small scale Industries produce an enormous variety of goods e.g. readymade garments, stationery, soaps, Leather s goods, Plastic and rubber goods.

3. Export : The share of product from SSI is 45% of total export from India. So it earn valuable foreign exchange and solve the problem of balance of payment.

4. Balance regional development : S.S.I can be set any where in the country. They use local resources. Less capital and simple technology.

5. Complementary to large scale Industries : S.S.I. supply various types of components, spare parts, tools. Which are required by large scale enterprises.

6. Low cost of production : S.S.I. also enjoy the advantage of low cost of production because they used local resources in their product.

7. Quick and timely decisions : Due to the small size of the organisation, quick and timely decisions can be taken without consulting many people.

8. Development of entrepreneurship : S.S.I. provide opportunity of young men and women to start their own business.

ROLE OF SMALL BUSINESS IN RURAL INDIA

1. Provides Employment in Rural Areas : - Cottage and rural industries provide employment opportunities in the rural areas as these are labour oriented enterprises. In Indian rural areas ample labour is available 

2. Improve Economic Condition : Small business provide multiple source of income to the rural households. S.S.I improve economic conditions and standard of living of people living in those Areas.

3. Prevent migration : Development of rural and village industries can also prevent migration of the rural population to urban areas in search of employment.

4. Utilisation of Local Resources : S.S.I. use local resources e.g. coir, wood and other products.

5. Equitable distribution of national Income : Small Scale Industries and cottage Industries ensure equitable distribution of national income. This helps to reduce the gap between rich and the poor in the country.

6. Balanced Regional development - These enterprises are often dependent on local source of production. This way, industries do not just limit themselves to a particular place but diversify. This helps in balanced regional  development.

•  Problems Of Small Scale Industries

√ Small scale industries find it difficult to get loans from banks & other financial institutions.

√ They are not able to get quality raw materials at reasonable prices.

√ They are usually run by people who may not have managerial skills.

√ They cannot pay higher salaries to employees so they leave the business.

√They face competition from global enterprises.

√ They use outdated machineries & technologies.

√ Their quality of goods is low.

√ Due to lack of marketing skills & lack of demand, half of the capacity is not utilized so the operating cost is more.

•  Government Schemes and Agencies for Small-Scale Industries (SSI)

Government Measures and Schemes

√ Land is supplied at a concessional rate to industries setup in back ward areas.

√ Power is supplied at a concessional rate.

√ Water is supplied on no profit no loss basis.

√ In all union territories SSI’s are exempted from sales tax.

√ Scarce raw materials are supplied on priority basis.

√ Loans are offered at concessional rate.

√ They are exempted from payment of tax for 5 or 10 years.

√ 800 items are reserved for exclusive production by SSI’s.

I. National small Industries Corporation (NSIC)
This was set up in 1955 to promote, aid and foster the growth of small scale units in India. Main constraint faced by enterpreneurs is shortage of funds to purchase machinery and equipment. Non availability of finance, deprives many new enterpreneurs from availing apportunities. NSIC was established to cater to this need of enterpreneur.

Main functions of NSIC :

1. It supplies imported machines and raw materials to small scale industries on easy hire-purchase schemes.

2. It export the products of small units.

3. It provides technology to small scale Industries.

4. Helps in upgradation of technology

5. Provides advisory service

6. Provides various equipment on lease basis.

7. Undertakes construction of Industrial estates.

II. District Industries Centre (DIC)
The concept of DIC came during 1977, when govt. of India announced the new Industrial policy on 23rd Dec., 1977. The main objective of DICs is to make available all necessary services at one place. The finance for setting up DICs in a state are contributed equally by particular state Govt. and Central Govt.

Functions of District Industries Centre

1. Act as the focal point of industrialisation of the district

2. Identifies projects for setting up of SSI units.

3. Issues permanent registration certificate to SSI units.

4. Provides marketing support to SSI units

5. Act as a link between the entrepreneurs and the lead bank of district.

6. Helps businessman in obtaining licence from Electricity board, water supply board etc.

Govt. Incentives to hilly backward and Rural Areas

1. Power : Some states supply power at a concessional rate of 50%.

2. Tax holidays : Exemption from payment of tax for 5 years.

3. Land and Water : Availability of land at concessional rate. Water is supplied on no profit no loss basis.

4. Octroi : Most of the states have abolished octroi.

5. Protective Measures :- The government reserved 800 items for exclusive production by the small scale Industries and give priority in allocation of raw materials and machines.

6. Marketing Assistance : - Government tries to solve their marketing problem by improving information and in order to provide guarantee for sale of goods.

7. Finance Subsidy of 10-15% for building capital asset. Loans are offered at concessional rates.

8. Sales Tax In all Union Territories, small industries are exempted from sales tax while some states give exemption of 5 years.

• Institutional support

1. National small industries corporation

√ It supplies imported machines and raw materials to SSI’s on easy hire purchase schemes

√ It exports the products of SSI’s

√ It provides technologies to SSI’s and creates awareness on technological up gradation

2. District Industrial centers

√ They provide an integrated administrative frame work at the district level

√ They provide all the services and support facilities to the entrepreneurs for setting up small and village industries

3. Small industries development bank of India  

v It was setup in 1989 for promotion, financing and development of small business in India.

v It provides term loans to SSI units for modernization, technology up gradation and diversification.

v It provides assistance for working capital requirements for SSI’s and tiny industries.

v It provides assistance for rehabilitation of potentially viable sick units in SSI sector.

v It undertakes discounting of bills for small business.

v It provides services like factoring, leasing, etc.

v It extends financial support to various institutions engaged in the promotion of small business, such as the state financial corporation (SFC), state industrial development corporations (SIDC), etc.

v It has formulated a credit guarantee fund trust (CGFT) for small industries for guaranteeing the loans and advance up to Rupees 10 laky.

•  Very Short Answer Type Questions:

1. Name the two categories of village and small industries sector in India.

Ans. Traditional small industries –handlooms, handicrafts, coir, sericulture, khaki, and village industries Modern small industries- small scale industries and power looms.

2. Name the small scale unit in which investment in plant and machinery does not exceed rest 25 laths.
Ans. Tiny industrial units.

3. How much do small industries in India account for the total industrial units?
Ans. 95%.

4. How much do small industries contribute to total export from India?
Ans. 45%.

5. Give the full form of NABARD.
Ans. National Bank for Agriculture and Rural Development.

•  Short Answer Type Questions:

1. How would you differentiate between an ancillary unit and tiny unit?
Ans. Aspin ancillary unit the investment in plant and machinery is up to 1 core and supplies 50% of its production to the parent unit In tiny unit the investment in plant and machinery is up to 25 laths

2. What is the difference between small scale enterprise and cottage industries?

Ans. In small scale industry in investment in fixed assets is up to 1 core where as in cottage industry produce simple products by using indigenous technology and the investment per person is RS 50,000.

3. Explain four important problems of small business in India.
Ans. The following points should be explained
v Finance
v Management skills
v Marketing
v Quality

4. Explain any 3 incentives offered by got to small scale enterprise so that they can contribute in the development of overpopulated country like India.
v Protective measures
v Credit and finance
v Marketing assistance
v Incentives
v Institutional support

•  Long Answer Type Questions:

1. The path of small scale industries is full if hurdles.” In the light of this statement, discuss the problems faced by small scale industries.
Ans. The following Problems of small scale industries should be explained
v Finance
v Management skills
v Marketing
v Quality
v Under utilization of capacity
v Raw materials
v Labor
v Technology
v Global competition

2. Describe the role of small business in rural India.
Ans. The following points should be explained
v Generation of employment in rural areas
v Multiple source of income
v Prevent migration
v Mobilization of local resources
v Rural industrialization
v Reduction in income inequalities
v Equitable distribution of national income

3. Identify any 6 major industry groups in the small sector in India.
Ans. 1. Food products
2. Chemicals and chemical products
3. Hosiery and garments
4. Leather and leather products
5. Repair services
6. Beverages, tobacco and tobacco products.

4. Mention the forms of support to small industries by the govt.
Ans.1. Institutions for credit facilities.
2. Provision of training facilities.
3. Supply of machinery on hire purchase system.
4. Technical assistance.
5. Financial assistance for technological up gradation.
6. Incentives for setting up enterprises in backward areas.

•  Gist of the Lesson

Role of small scale industries in socio economic development of India
v Employment generation
v Output generation
v Export promotion
v Balance regional development
v Development of entrepreneurship
v Complementary to large scale industries

Role of small scale industries in rural India
v Generation of employment in rural areas
v Multiple source of income
v Prevent migration
v Mobilization of local resources
v Rural industrialization
v Reduction in income inequalities
v Equitable distribution of national income

Problems of small scale industries
v Finance
v Management skills
v Marketing
v Quality
v Under utilization of capacity
v Raw materials
v Labor
v Technology
v Global competition

Measures taken by the government
√ Protective measures
√ Credit and finance
√ Marketing assistance
√ Incentives
√ Institutional support

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