NCERT Solutions for Class 11 Business Studies – Chapter 9 – Small Business

Business Studies has great importance as it plays vital roles in our day-to-day life 

It teaches us how to manage money and purchases. To ensure that students learn all the important concepts of Business Studies, CBSE has prepared a comprehensive syllabus for Class 11. It talks about small businesses, the nature of small scale industries, problems of small businesses, NABARD, NSIC, SIDBI, and other government bodies, and many more topics.

The NCERT Chapter 9 Small Business covers all the aspects in detail. To understand the chapter well, students should solve the practise questions given at the end of the chapter. They can refer to NCERT Solutions for Class 11 Business Studies Chapter 9 to get answers to all the questions given in the NCERT textbook.

Class 11 NCERT Solutions Business Studies – Chapter 9

Access NCERT Solutions for Class 11 Business Studies Chapter 9 – Small Business

NCERT Solutions for Class 11 Business Studies Chapter 9 Small Business

Businesses generally talk in-depth about concepts like accounts and finances, human resources, marketing stuff, and trade. The range of topics in Chapter 9 is designed to give the students a general overview of the various elements of running a business. It gives students a clear understanding of small businesses and how they are started. 

Small Business 

A business that functions on a small-scale involving less capital investment, less labour, and fewer machines to operate is known as a small business. The term “small” can be defined in terms of being able to apply for government support and qualify for preferential tax policy — which varies by country and industry. Small scale Industries are the types of industries that produce goods and services on a small scale. However, it can be more potent in a smaller business, and internal interactions can be made more straightforward.

Categories of Small Business 

1)Small Scale Industry (Before 2006)

  • A small scale industry invests in fixed assets of machinery and plants, which do not surpass one crore.

2) Ancillary Small Industrial Unit

  • An  industry can hold the status of an ancillary small industry if it supplies a minimum of 50 per cent of its product to another business, i.e., the parent unit.
  •  They have an individual or a combined share capital minimum of 51 percent.

3) Tiny Industrial Units

  • It is an Industry or a company whose expenditure on machinery and plant does not exceed Rs. 25 lakhs.

4) Small Scale Service and Business

  • It’s an industry whose   investment on machinery and plant excluding land and building does not exceed  Rs. 10 lakhs.

5) Micro Business Enterprises

  • It is a small business  run by owners generally for supporting themselves and their families 

6) Village Industries

  • The industries, located in rural areas which manufacture any products or render any service with or without the utilisation of power are called village industries.

7) Cottage Industries

  • It is also known as a traditional or rural industry in which business is generally carried on in people’s homes.

Some other types of businesses are also prevalent such as  auto repair, beauty salons, etc.

Characteristics of Small-Scale Industries

-Ownership

Small Scale Industries are generally under single ownership. So, it can either be a sole proprietorship or sometimes a partnership.

-Flexibility

Small Scale Industries are more adaptable to their changing business environment. So, in case of amendments or unexpected developments, they are flexible enough to adapt and carry on, unlike large industries. 

-Resources Utilisation

They use local and readily available resources which helps the economy fully utilise natural resources with minimum wastage.

Most Popular Small Business

  • Food Services 
  • Health Care
  • Cafés 
  • Local Auto Repairs
  • Second hand (Online) Stores
  • Personal Trainers
  • Entertainment
  • Real estates

The Secret to Finding a Business Idea 

The secret behind business ideas is that you need to be organised and put effort into thoroughly  and solidly list out the practical business ideas. Then you need to carefully assess which ones you like the most and have a strong belief in.

How Can House Cleaning Be a Small Business?

House cleaning is very important because it ensures a healthy living atmosphere. It impresses a positive impact on the guest and improves the standard of living in the house. Cleaning the entire house is a tough job and takes lots of time. It is one of the most popular small businesses because everyone wants a house cleaner. Above all,  the work is repetitive.

Solved Examples: 

What kind of business is best?

  • Automobile repair
  • Tiffin service
  • Electronics repair
  • Blogging as a small business
  • Private tutoring
  • Pet-care service
  • Educational mobile apps
  • Bake the cake
  • Handyman
  • Woodworker
  • Online dating consultant

and many more small businesses are included.

Q.1 What are the different parameters used to measure the size of business?

Ans.

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.

Q.2 What is the definition used by Government of India for small scale industries?

Ans.

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.

Q.3 How would you differentiate between an ancillary unit and a tiny unit?

Ans.

The following are the differences:

Ancillary Unit Tiny Unit
Small scale industry that supply minimum of 50% of their production to parent unit Industries that have maximum investment of ₹ 25 lakhs in their plant and machinery.
Maximum level of investment ₹ 1 crore Maximum level of investment ₹ 25 lakhs
Assistance from parent unit on technical and financial grounds No such assistance
Industries are engaged in manufacture parts, components, subassemblies, tools or intermediate

products for the parent unit

 Industries engaged in small shops, boutiques, photocopy centres, telephone booth
Assured demand from parent company No such assurances

Q.4 State the features of cottage industries.

Ans.

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.

Q.5 How do small scale industries contribute to the socio-economic development of India?

Ans.

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.

Q.6 Describe the role of small business in rural India?

Ans.

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.

Q.7 Discuss the problems faced by small scale industries.

Ans.

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.

Q.8 What measures has the government taken to solve the problems of finance and marketing in the small scale sector?

Ans.

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.

Q.9 What are the incentives provided by the Government for industries in backward and hilly areas?

Ans.

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.

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FAQs (Frequently Asked Questions)

Small businesses play an important role in the development of rural India as well as the Indian economy at large. Small scale industries such as cottage industries and rural industries help in providing job opportunities to the rural population. They help the rural people overcome poverty by becoming economically stable. Small scale industries provide employment throughout the year and help the rural population combat seasonal employment caused by seasonal activities such as agriculture. 

The first challenge faced by the small-scale industries is that they lack funds and are mostly self-financed. It has only a few external funding sources such as lenders or the local financial agencies. The second challenge is the shortage of raw materials due to the lack of funding and proper functioning in rural areas. The third challenge is the lack of efficiency as the labourers hired are semi-skilled and less efficient due to which they have low wages as well

Small scale industries face the following problems:

  1. There exists a lack of funds for people starting in this sector as the investment is mostly self-financed and the other source of funds can be from moneylenders or local financial agencies or agents.
  2. Small industries often face a shortage of raw materials due to the unavailability of finance, also lack a proper supply chain and logistics in rural areas resulting in a shortage of raw materials that hinder proper functioning.
  3. As the wages are less, they can only  hire semi-skilled labourers which results in a lack of talented manpower that impacts their efficiency.
  4. The small-scale industries are unable to spend more on marketing due to a lack of funds.

Cottage industries are characterised by the following features:

  1. These industries are owned by individuals who have invested their resources into these units.
  2. Such types of industries do not hire many labourers, it is mostly operated by family members.
  3. Skills required for maintaining a cottage industry are available within particular families.
  4. The amount of capital invested is very less.
  5. Production techniques are indigenous which requires labour-intensive work.
  6. The production is primarily for consumption by self and family, while some portion of it is sold in the market to earn some money.

 A few steps you can follow to start your small business are:

  1. Market research:

Market research will tell you if there’s a chance to turn your idea into a successful business startup or not.

  1. Write your business plan:

The plan you make is the foundation of your business. It’s a route for how to structure, run, and grow your new business.

3) Pick your business location

4) Choose a business structure

5) Choose your business name

6)  Register your business

7) Apply for licences and permits

8) Open a business bank account

It’s a long process to follow but if you’re patient, you are likely to succeed. You need to keep  putting  effort into starting up a business. You need to do a lot of research work. Putting in your strategy and mindset will make the path towards success.