NCERT Solutions for Class 11 Commerce Business studies Chapter 9 - Small Business

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Answer:

The Micro, Small and Medium Enterprises Development (MSMED) Act was passed in the year 2006.

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As per Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 a Micro enterprise is one which has investment in Plant and Machinery of less than ₹1 crore and turnover of not more than ₹5 crores.

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Cottage industries are also known as rural industries or traditional industries. They are not defined by capital investment criteria as in the case of other small scale industries. They perform agricultural activities along with other supplementary activities at home.
The following are a few important features of cottage industries: (any one)
i. Owned and operated by individuals who invest their private resources in these units
ii. Employ family members as labour
iii. Require talent and skills that are generally passed on from one generation to the next in the family
iv. Are highly labour-intensive and indigenous, with very less amount of capital required
v. Sell a small portion of the output in the local market.

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Village industry has been defined as any industry located in a rural area which produces any goods, renders any service with or without the use of power and in which the fixed capital investment per head or artisan or worker is specified by the central government, from time to time. Set up by the Khadi and Village Industries Commission in 1957 and engaged in the manufacturing of products such as handloom, spices, pottery wares and candles.

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Following are the features of Entrepreneurial Development:
1- It is a systematic activity: It is a step by step, purposeful activity which requires planning and determination. It requires skills and competency and proper procedure should be followed.
2- Innovation: Entrepreneurship invites creativity and leads to novel idea generation. It leads to new techniques, products and discovery of new markets.

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The definition used by the Government of India to describe MSME is based on the investment in plant and machinery and turnover:
 

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Entrepreneurship refers to a systematic, purposeful and creative activity which involves identifying needs of the people, channelising resources for production and organising production with the aim of providing value to the consumers and profits for the self in accordance with the risks and uncertainties associated with business.

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Yes, entrepreneurship and MSMEs are inter-connected as to start a small business one needs innovation and creativity which is a base for entrepreneurship. Two reasons to support the answer would be:
1- MSME are the second largest employers of human resources, after agriculture. They generate more number of employment opportunities per unit of capital invested compared to large industries. Therefore, it provides an attractive place to start for most entrepreneurs.
2- . The skills and talents of people can be channelled into business ideas which can be converted into reality with little capital investment and almost nil formalities to start a small business. Thus, MSME is often a starting point for most entrepreneurs.

Answer:

Some of the major roles of small-scale businesses in rural India are as follows:
 i. They provide employment opportunities, particularly to the people in rural and backward areas.
ii. They mitigate disguised unemployment and help alleviate poverty.
iii. By providing employment and entrepreneurship, they enable equitable distribution of income.
iv. They contribute a lot towards economic growth and development in rural and backward areas.
v. They facilitate rural development and reduce migration from rural to urban areas.

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The two parameters to measure/classify small business are:
1- Investment in Plant and machinery
2- Annual sales turnover

Answer:

Village industry has been defined as any industry located in a rural area which produces any goods, renders any service with or without the use of power and in which the fixed capital investment per head or artisan or worker is specified by the central government, from time to time. Set up by the Khadi and Village Industries Commission in 1957 and engaged in the manufacturing of products such as handloom, spices, pottery wares and candles.

Answer:

The following are the major problems faced by small-scale industries (SSIs) in India:
i. Inadequate finance and credit because of lack of proper sources of credit
ii. Inadequate raw materials because of the shortage of funds and finance
iii. Lack of skilled labour for production activities.

Answer:

Small-scale industries (SSIs) play an important role in ensuring the progress of developing countries such as India. The following points highlight their contribution.

(a) Market share: SSIs make up 95 percent of the industrial units in India. They contribute about 40 percent of the ‘gross industrial value added’ and 45 percent of India’s total exports.

(b) Employment generation: As SSIs use labour-intensive production techniques, they have a greater employment generation potential than large industries. Moreover, the skills required to perform jobs in SSIs are usually not very specific, which further increases their scope for generating employment.

(c) Wide range of products: Small-scale units produce a large variety of consumer products, such as stationery items, safety matches, handicrafts, vegetables and processed food. Besides, SSIs also produce a few items by using technology, such as calculators, televisions and engineering goods.

(d) Regional balance: SSIs produce simple products and use basic technology. In addition, these industries do not require heavy capital investment, and therefore, they can be set up by anyone anywhere across a country. Small units not only benefit the particular region where it is established but also help reduce the regional disparities in industrial development among different regions of a country.

(e) Customised goods: Small industrial units adapt perfectly to specific needs of consumers. As SSIs use simple and highly flexible production techniques, they can provide their customers with goods best suited to the customers’ tastes and preferences.

Answer:

The following are some of the major roles played by small-scale businesses in rural India.

(a) They generate employment opportunities: Cottage and rural industries play a significant role in providing employment opportunities, particularly to people in rural areas. This proves to be a boon especially for the economically weaker sections of the rural society.

(b) They mitigate disguised unemployment and alleviate poverty: Small-scale businesses use labour-intensive production techniques, and are, therefore, able to provide employment to the excess/surplus rural labour. Thus, small-scale businesses remove disguised unemployment from the agriculture sector and at the same time provide livelihood to the rural people. Hence, they contribute to alleviating rural poverty.

(c) They enable equitable income distribution: The capital requirements of small-scale businesses are low, mainly because of their use of labour-intensive production techniques, and this encourages entrepreneurs to start units on a small scale. Small-scale businesses are, therefore, set up all over the country, many of them providing employment opportunities to people in rural areas. This triggers the redistribution of wealth and income, and enables the equitable distribution of income in rural areas.

(d) They help accelerate growth: Small-scale businesses have been considered as a major propeller for the acceleration of economic growth and as an employment generator, particularly in the rural and backward areas of India.

(e) They facilitate rural development and reduce migration from rural to urban areas: It is well known that a large number of people migrate from rural to urban areas in search of better employment opportunities and improved living standards. Small-scale businesses help reduce this migration by providing employment opportunities to rural people in their own regions. By doing so, small units also help mitigate the excessive pressure on urban infrastructure.

Answer:

The following are the major problems faced by small-scale industries (SSIs) in India.

(a) Inadequate finance and credit: The SSIs have always faced the problem of inadequate finance and credit. This is partly because of the scarcity of capital available with the entrepreneurs in the sector and partly because of their lack of assets for offering as collateral/mortgage to secure bank loans. As a result, these businesses have to rely on local financial resources and moneylenders for funds.

(b) Problem of procuring raw materials: Due to inadequate finance and credit, SSIs face a shortage of funds for procuring raw materials and for carrying out their day-to-day business activities. In addition, the poor transportation system and the faulty supply mechanism often result in irregular supply of raw materials. For these reasons, SSIs face a severe shortage of raw materials, which hinders their smooth functioning.

(c) Lack of skilled labour: As SSIs cannot afford to pay high salaries to their employees, they usually employ semi-skilled or unskilled labourers. Hence, they face a lack of skilled and talented manpower, which adversely affects their efficiency.

(d) Marketing: Efficient systems for marketing and promoting products have remained an unfulfilled dream of small-scale industries. The main reason is the shortage of funds. Because of the lack of efficient marketing systems, small units are forced to sell their products in the markets through the middlemen, which further leads to the exploitation of the small scale entrepreneurs.

(e) Obsolete/outdated technology: Many small-scale industries use production techniques which are outdated and obsolete. This lowers their productivity and makes their operations unfeasible.

Answer:

The small-scale sector has played a major role in employment generation, regional development and export promotion in India. The Government of India has realised that a lot more can be achieved if the two major bottlenecks that affect the further development of SSIs—inadequate funds and inefficient market penetration—are removed. In pursuit of this objective, the government has established the following agencies.

(a) National Bank for Agriculture and Rural Development (NABARD): Itwas established in 1982 with the main objective of promoting rural development and integrating the efforts in this direction. This agency is an apex banking body that governs the operations particularly of the rural and ‘gramin’ banks. The main focus of NABARD is to provide cheap and easy credit facility to small, cottage and rural industries.

(b) Small Industries Development Bank of India (SIDBI): It was set up to provide direct and indirect financial assistance under different schemes. It caters to the credit and finance requirements of especially small-scale enterprises.

(c) World Association for Small and Medium Enterprises (WASME): It is an international non-governmental organisation that addresses the problems of small- and medium-scale enterprises. It has set up an ‘International Committee for Rural Industrialisation’ with the aim of designing a model for the growth and development of rural industries.

(d) The National Commission for Enterprises in the Unorganised Sector (NCEUS): It was formed in September 2004 with the objective of improving the efficiency and enhancing the global competitiveness of small-scale industries. It focuses on addressing the problems faced by small enterprises, particularly in the unorganised/informal sector.

(e) Various development and employment generation programmesBesides establishing the organisations mentioned above, the government has launched various programmes for rural development. Among the important programmes are the Prime Minister’s Rozgar Yojana (PMRY), Integrated Rural Development Programme (IRDP) and Training of Rural Youth for Self-Employment (TRYSEM). These programmes are aimed at generating greater employment opportunities, developing rural areas and making the rural people self-reliant.

Answer:

MSMEs in India account for 95 per cent of the industrial units in the country which makes it imperative for entrepreneurs to bring novel ideas in the market. Due to changing environment need for new techniques and technical breakthroughs are important.  Innovation is an integral part of MSME due to the following reasons:
1- Wide market offering: Creativity is required to increase the market base of goods produced by MSMEs.
2- New ideas for products and services which are technologically enhanced and profit generating.
3- The Ministry of MSME's initiatives are designed to encourage and support individuals' latent creativity, as well as the adoption of cutting-edge manufacturing technology and knowledge-based innovative MSMEs or ventures.
4- The Ministry of MSMEs has established 18 Technology Centers (TCs) across the country. These were known as Tool Rooms (10 no.) and Technology Development Centers (8 no.) earlier.
5- To expand the reach of the Technology Centres, the Ministry has launched 15 new TCs, with construction work currently underway in various locations across the country.

Answer:

The reasons that justify this statement are:
• To modernise technology, we need infrastructure support to allow small business to generate new concepts that are beneficial not just to MSMEs but also to the entire industrial environment.
• The Ministry of MSME's initiatives are designed to encourage and support individuals' latent creativity, as well as the adoption of cutting-edge manufacturing technology and knowledge-based innovative MSMEs or ventures.
• Technology Centers play an important role in corporate development.
• The scheme's main goal is to encourage and support individuals' latent creativity, as well as the adoption of cutting-edge manufacturing technologies and knowledge-based innovative MSMEs.
• Technology-based startups are often regarded as high-risk, high-growth businesses, and they require an empowering environment to improve their chances of success.
Thus, we can say that 'Creativity and Innovation is the key to MSME'.