NCERT Solutions For Class 11 Business Studies Chapter 8 Small Business and Enterprises

The role of small business is crucial to the Rural India for the growth of economy. Following are the main points showing the importance of this sector for the growth and development of rural areas of the country:

• Small scale industries utilise local resources and provide employment opportunities for the weaker sections of the societies.
• The people find employment opportunities in their areas thus development of small scale industries in rural areas prevents migration of the rural people to urban areas.
• Small business mobilises unutilised savings of people in villages and uses them in productive activities. It creates more income opportunities and helps in improving the standard of living.
• Small business in rural areas reduces the inequality of income between rural and urban areas.

Small Scale Industries play an important role in the development in our country. It can be understood with the following points:

• Employment Opportunities: Small business sector is the second largest sector after agriculture to provide employment opportunities in our country. As the small business units use labour intensive techniques, they are able to give employment to workforce.
• Balanced Regional Development: Small business units use simple technologies and produce simple goods of general use. These units depend upon local resources for material and labour. They can be widely spread without any locational constraints; it provides balanced development to all regions of the country.
• Entrepreneurship Opportunity: Small business or industrial units can be started easily with less capital. It provides a good opportunity to individuals to who wish to become entrepreneurs. Governments have initiated various schemes and programmes to help the youth by way of providing training and necessary assistance.
• Low Cost Production: These units generally use local talent and resources which can be achieved at comparatively lower cost. It helps to minimise the cost of production and to reap the benefits of low cost production.
• Contribution in GDP: The small business/industrial sector continues to remain an integral part of Indian economy with significant contribution to GDP and industrial production in India. This sector in India contributes almost 40 per cent of the gross value added in manufacturing sector and 6.8 per cent of GDP.
• Customised Production: This sector is best suited for producing the goods or rendering the services as per the choice and need of the consumers. The recent trend in market is to get everything according to the need of the end user. This can be facilitated by the small businesses easily as they use simple and flexible production techniques.

The following are the features of cottage industries:

• These are organised by individuals with private resources.
• Family labour and locally available talents used.
• Simple equipment used.
• Small capital investment.
• Production of simple products in their own premises.
• Production of goods using indigenous technology.

The following are the differences:

The Government of India defines small industries on the basis of their investment in plant and machinery. Industries where the amount invested in a fixed assets (particularly plant and machinery) is less than ₹ 1 crore are regarded as small scale industries. Export oriented units that use modern production techniques are considered as small scale industries if their investment does not exceed ₹ 5 crore.

The following are the different parameters used to measure the size of business:

1. Number of people recruited in the business
2. Amount of capital invested
3. Value and volume of output produced
4. Power consumption by business in carrying out its activities.

The incentive provided by the Government for industries in backward and hilly areas are:

• Land: Land is a fixed asset needed for every type of industrial activity. It is a scarce and costly factor of production. Almost all states offer developed plots for setting up of industries. However, some states don’t charge rent in the initial years, while some allow payment in installments for these plots.
• Power: Business units generally cannot function without power. To provide help to small scale industries, power is supplied at a concessional rate in some states, while some states exempt some units from payment in the initial years.
• Water: Water is a basic need for every business or non-business activity. Hence, water is supplied on a no-profit, no-loss basis or with some concession or exemption from water charges in initial years of set up an industrial unit.
• Sales Tax: To boost the growth of industrial activities in backward, tribal and hilly areas most states provide rebates in taxes and duties. In all union territories, industries are exempted from sales tax, while some states extend exemption for 5 years period.
• Raw materials: Various schemes and programmes are initiated to help small units in acquiring raw materials if they are not easily available. Units located in backward areas get preferential treatment in the matter of allotment of scarce raw materials like cement, iron and steel etc.
• Finance: Finance is a major problem for the industrial sector in developing countries like India. To provide help in financing long term assets, some schemes are launched with the help of banks and financial institutions. Subsidy of 10-15 per cent is given for building capital assets. Loans are also offered at concessional rates.

The Government has provided the following institutional support to solve the problem of finance and marketing in the small scale sector:

1. National Bank of Agriculture and Rural Development (NABARD): NABARD was set up by the Government of India in 1982 to promote integrated rural development in the country. It supports small and rural industries by offering credit facilities, counselling and consultancy services and organising training programs.

2. Small Industries Development Bank of India (SIDBI): Small Industries Development Bank of India (SIDBI) was set up in 1990 under an Act of Indian Parliament. It is the principal financial institution for the promotion, financing and development of the small business sector. It provides direct and indirect assistance to meet credit needs of small business organisations.

3. National Small Industries Corporation (NSIC): NSIC was set up in 1955 to foster the growth of small business units. It supports the commercial aspect of the business, such as:

4. Supplying machines on hire-purchase terms -

• Procuring and distributing raw materials
• Exporting products of the SSI units
• Creating awareness of technological up-gradation
• Developing software technology parks
• NSIC has also implemented a scheme of ‘performance and credit rating’ of small businesses.​​​​​​​

5.Rural and Women Entrepreneurship Development (RWED): Rural and Women Entrepreneurship Development programme aims at promoting a conducive business environment and providing encouragement and support for entrepreneurial initiatives of rural people and women. It provides training and advisory services to new entrepreneurs, especially women.

6. Scheme of Fund for Regeneration of Traditional Industries (SFURTI): The Central Government set up this fund to make the traditional industries more productive and competitive and to facilitate their sustainable development. The main objectives of SFURTI are to develop clusters of traditional industries in various parts of the country; build innovative and traditional skills, improve technologies and encourage public-private partnerships, develop market intelligence etc.

7. World Association for Small and Medium Enterprises (WASME): WASME is an international non-government organisation of micro, small and medium enterprises based in India. It promotes the non-farm sector by initiating various schemes. There are various schemes such as -Integrated Rural Development Programme, Prime Minister Rojgar Yojana, Training of Rural Youth for Self Employment and Development of Women and Children in Rural Areas.

Followings are the main problems faced by Small scale industries:

• Inadequate Finance: A small business is initiated with a small amount of capital. Most of the small business units have little amount invested in long term assets. It affects the capacity of a firm to raise loan, as lenders need some security to allow loans. Banks also do not lend money without adequate collateral security or guarantees, which many of them are not in a position to provide.
• Unskilled Workers: Small business firms do not have sufficient funds to pay higher salaries to the employees. Because of lower salary offered, attracting talented people is a problem for these firms. Unskilled workers join for low remuneration but training them is time consuming and costly process. Generally, productivity per employee is found to be low and employee turnover rate is high.
• Non-Availability of Raw Material: Small business firms have to compromise on the quality of raw material due to non-availability of cheaper but high-quality material. Material available to these units at a higher cost as their bargaining power is relatively low, considering the small quantity of purchases made by them.
• Less Managerial Skill: Small business units are promoted and managed by individuals with less capital. As the small scale of operations, these are managed by their sole owners, who may not have managerial skill. Due to inadequate funds it these units are not also in a position to afford highly skilled managers.
• Poor Quality: Generally small business units do not adhere to desired standards of quality. They concentrate on cutting the cost and keeping the prices low. Moreover, they do not have adequate funds to invest in quality research and maintain the standards of the industry. They have no expertise to upgrade the technology.
• Global Competition: In the present scenario of global competition, small firms are not able to compete with multinational corporations. The large organisations operate on large volumes. Moreover, small firms face competition in terms of technological skills, financial credit worthiness, and marketing capabilities. The large firms can cut the cost without compromising on quality due to the economies of large scale, it creates a problem for the small units to face the competition.