Chapter-8

SMALL BUSINESS

Q.1 Define Small Business. (1)

Ans- According to MSMED ACT, 2006, Small Business can be classfied as manufacturing enterprise on
the basis of investment in plant and machinery where investment should not exceed Rs 5 crore and
service enterpriss on the basis of investment in equipments where investment should not exceed Rs
2 crore.

Q.2 What is the role of small business in Rural India? (5)

Ans- 1. Small scale industries are labour intensive so they provide additional employment to men
and women. Next to agriculture, small business constitutes the most popular occupation of people
of India.

2. The small scale industries provide more income to people living in rural areas, which improves
economic conditions in villages.
3. Small business set up in rural areas provides scope for the promotion of artistic achievement and
creativity that has been suppressed in rural areas.
4. Small scale industry set up in rural areas leads to their development which may result in sustained
growth and removal of regional disparity.

5. Small Scale industry facilitate mobilisation and utilisation of local resources which might otherwise
remain unutilised.

Q.3 Explain the role of small business in India. (6)

Ans- 1. Small scale industries contribute almost 40% of the gross industrial value added . These
industries can produce one unit of output with one third of the capital required by large enterprise .
2. They are a provider of large variety of products like readymade garments, domestic utensils,
stationery items, etc. They provide employment opportunities in the rural areas especially for the
weaker sections of society.
3. About 95% of the industrial units in the country consists of small industries after agriculture , they
are the second largest employers of human resources.
4. They produce simple products using simple technologies and depend on locally available
resources both material and labour can be set up anywhere in the country . They contribute to
balanced regional development of the country.
5. They provide an opportunity for entrepreneurship. The latest skills and talents of people can be
channeled into business ideas which can be converted into reality with little capital investment and
almost nil formalities to start a small business . They enjoy low cost of production .
6. Due to small size of the organisation, quick and timely decisions can be taken without consulting
many people as it happens in large sized organisations. Also the small industries are best suited for
customised production that is designing the products as per the needs of the customers.
Q.4 Explain Manufacturing and Service Enterprises according to MSMED ACT, 2006. (4)
Ans- This Act is the first single comprehensive legislation which covers all the three segments micro,
small and medium. The Act classified micro , small and medium enterprises on the basis of
investment in plant and machinery or equipment.

1. Manufacturing Enterprises- It can be classified on the basis of Investment in plant and machinery:

a)Micro Enterprise- Maximum investment of Rs 25 lakh.

b)Small Enterprise- Enterprises investing more than Rs 25 lakh and less than Rs 5 crore.

c)Medium Enterprise- Enterprises investing more than Rs 5 crore and less than Rs 10 crore.

2. Service Enterprises- It can be classified on the basis of investment in equipment:

a) Micro Enterprise- Enterprises investing maximum of Rs 10 lakh.

b)Small Enterprises- Enterprises investing more than Rs 10 lakh and less than Rs 2 crore.

c) Medium Enterprises- Enterprises investing more than Rs 2 crore and less than Rs 5 crore.

Q.5 Explain the institutions set up for the development of SSI's. (6)

Ans-1. NATIONAL SMALL INDUSTRIES CORPORATION (NSIC):

a) It was established in 1955 to promote, aid and foster the growth of small business units in the
country.

b) To provide plant and equipment to SSI's on hire purchase basis.

c) To assist small scale industries in marketing their products.

d) To procure and distribute indigenous and imported raw materials .

e) To export the products of small business units and develop export worthiness.
f) To sensitise small industries about their credit rating through the performance and credit rating
scheme where they ensure that small industries are sensitive about their credit rating and maintain
their financial record so that they can easily get credit from financial institutions.

2. DISCRICT INDUSTRIES CENTRES(DIC's)

a) This programme was launched in May 1978 and it provides administrative framework at the
district levels with an aim to understand the problems of industrialisation and provide their
solutions.
b) Prepares business reports, arrange credit and other resources like raw materials , labour, etc as
required for running and managing of rural industries.

c) Provide support services to the entrepreneurs for setting up small and village Industries.

d) Implements state governments promotional and developmental projects for SSI.

3. NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT(NABARD)

a) It was established by Government of India in 1982 as a Development Bank.

b) It performs the following functions-

- It facilitates credit flow for promotion and development of agriculture and integrated rural
development.

- It offers counseling and consultancy services.

- It organises training and development programmes for rural entrepreneurs.

- It prepares annual rural credit plans for all the districts in the country .

- It supports state governments in creation of infrastructure.

4. SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA(SIDBI)-

a) It was established as a wholly owned subsidiary of IDBI through the Act of Parliament in 1990 .

b) The main functions of SIDBI are-

- Provides direct and indirect financial assistance to small industries under different schemes.

- Coordinate the functions of other institutions performing similar functions.

- Support micro financial institutions for capacity building and lending.

Q.6 Explain the incentives or schemes provided by the government for the industrial development
of rural, backward and hilly areas. (6)

Ans- 1. Land- Every state offers developed plots of land at concessional rates for establishing
industries. Some states do not charge rent in the initial years while some States allow payment in
easy installments.
2. Power- Some states supply power to small business units at concessional rate of 50% while some
states give it free of cost during the initial years .

3. Water- Water is supplied on no profit, no loss basis or at 50% discount or water charges are
exempt for 5 years.
4. Sales Tax- In all union territories, sales tax is exempted for small industries, while in some states
exemption is available for 5 years.
5. Raw Materials- Scarce raw materials like cement, iron and steel , etc are allocated on preferential
basis to industries located in backward areas.
6. Finance - Small Business enterprises are offered loans at concessional interest rates. Subsidy of 10
to 15% is given for building capital assets.

Q.7 Explain the terms:

a) Entrepreneurship

b) Entrepreneurship development

c) Entrepreneur . (3)

Ans- a) Entrepreneurship can be defined as a systematic ,purposeful and creative activity of

identifying a need ,mobilizing resources and organising production with a view to delivering value to
the customers , returns for investors and profits for the self in accordance with the risks and
uncertainties associated with business.

b) Entrepreneurship Development refers to the process of improving the skills and knowledge of
entrepreneurs through various training and classroom programmes.
c) An entrepreneur is a person who unites all the factors of production like land, labour ,capital , etc
to undertake some venture and thereby earn profit from it. Enterprise is the organisation which is
created for entrepreneurial activity .
Q.8 Explain the features or characteristics of Entrepreneurship. (6)
Ans- 1. Systematic Activity- Entrepreneurship is not an activity which happens by chance .It is a
systematic, step-by-step and purposeful activity. It has certain skills ,knowledge and competency
requirements that can be obtained, learnt and developed both by formal education and vocational
training as well as by observation and work experience.

2. Lawful and Purposeful Activity-

The purpose of entrepreneurship is lawful business. The objective of entrepreneurship is creation of
value for personal profit and social gain.

3. Innovation- Entrepreneurship is creative in the sense that it involves innovation or introduction of

something new . An entrepreneur recognises the need for change and initiates it. He does things in
new and better ways.
4. Organisation of Production- An entrepreneur assembles, organises and coordinates different
factors of production i.e land, labour, capital , etc. Therefore organising ability ,managerial skills and
leadership qualities are necessary for entrepreneurship.

5. Risk Element- Risk is an inherent and inseparable element of entrepreneurship. An entrepreneur

launches and runs an enterprise for profit motive but there is every possibility of loss.
6. Goal oriented Process- The entrepreneur who creates and operates an enterprise seeks to earn
profits through satisfaction of needs of customers. Therefore, entrepreneurship is a goal oriented
process.

Q.9 Explain the need for entrepreneurship. (4)

Ans- 1. Capital Formation- Entrepreneurs mobilise the ideal savings of the public through the issues
of industrial securities. Investment of public savings in industry results in productive utilisation of
natural resources. Thus, an entrepreneur is a creator of wealth in an economy.
2. Improvement in Per Capita Income- Entrepreneurs locate and exploit opportunities . They convert
capital into national income and wealth in the form of goods and services . They help to increase Net
National Product and Per Capita Income in the country ,which are important yardsticks for
measuring economic growth.
3. Generating Employment Opportunities- Entrepreneurs generate employment both directly and
indirectly. Directly, self employment as an entrepreneur offers the best way for independent life
and Indirectly ,by setting up large and small scale business units they offer jobs to millions.
4. Improvement in Economic Efficiency- Efficiency means to have greater output from the same
input . Entrepreneurs improve economic efficiency -by improving process, reducing wastages,
increasing yield and bringing about technical progress that is altering labour capital ratios.

Q.10 Explain the process of Entrepreneurship Development. (4)

Ans- 1. Self Discovery- Under this step, entrepreneur assesses what are his strengths and
weaknesses ,what all he enjoys doing and his work experience.
2. Identifying Opportunities- Under this step, he tries to find out the need ,want and problems so
that he can get an opportunity to overcome the problems and fulfill the need .

3. Generating and evaluating ideas- Through various measures such as discussion, brainstorming
,creativity and his own experiences, it tries to develop new ideas to overcome the problems and
meet the expectations of customers.

4. Planning- Under this step, entrepreneur conducts research ,makes business plan and strategies.
5. Raising startup capital - By using business plan ,entrepreneur tries to attract venture capitalist and
partners.

6. Start-up- Under this step ,the entrepreneur launches his enterprise and tries to develop more
customers. He also make changes as per the changes in the environment.

7. Growth- Entrepreneur tries to expand and grow the enterprise.

Q.11 Explain the problems faced by small scale entrepreneurs in India. (6)

Ans- 1. FINANCE-
a) Non availability of sufficient funds in order to carry out business operations is an important
problem faced by small scale industries. Many of these units fail to raise funds from the capital
market due to lack of creditworthiness .
b) Banks also hesitate to grant financial help to these units because many of these fail to provide
adequate collateral security or guarantees. As a result, they have to depend on money lenders for
finance who charge high rate of interest from them.

2. RAW MATERIALS AND POWER-

a) The small scale units suffer from acute shortage of raw materials. They are unable to buy
materials in bulk due to lack of sufficient funds and storage facilities.
b) They also have to compromise with the quality or have to pay a high price to get good quality raw
materials. Most of them cannot afford to install their own power generating sets because these
involve heavy costs. As a result, they are not able to continue production during the period of non
supply of power.

3. MANAGERIAL SKILLS-

a) Small scale industry is established and managed by single individual who may not possess all the
managerial skills needed to run the business.

b) Also, due to limited funds, they cannot afford to employ professional managers.

4. LABOUR-
a) Due to limited funds small business cannot afford to pay higher salaries to the employees . As a
result ,the productivity per employee is low and the rate of labour turnover is high. Therefore,
attracting talented and skilled employees is a major problem faced by small scale business.

5. MARKETING-

a) Small scale business generally face difficulties in marketing of their products and services as there
are hardly any funds for advertisement or sales promotion.
b) As a result, the products do not have a brand name or loyalty. They have ti depend on
middlemen, who sometimes exploit them by paying low price and delayed payments . Direct
marketing may not be feasible for them as they lack the necessary infrastructure.

6. TECHNOLOGY-
a) Most of the small scale enterprises are using old techniques of production because they cannot
afford new techniques, machines and equipments necessary for modernizing production.

b) The profit margin of these enterprises is generally low due to which they cannot undertake
innovative activities.

Q.12 Explain steps in Entrepreneurship Development Programme(EDP). (3)

Ans- 1. Pre- Training stage- This stage involves the following steps - selection of persons with
required potential for entrepreneurship, creation of infrastructure for training, preparing contents of
the training programme, designing training techniques and material and selection and training of
the trainers.
2. Training Stage- During this stage necessary motivation, competencies and behavioral patterns are
developed among the participants . Guidance is provided for identification of business opportunities
and selection of the production .Information about government agencies which provide support
system to entrepreneurs is given and also skills are developed for management of the enterprise.

3. Post Training Stage- The person responsible for providing support and follow-up helps them to
sustain motivation ,guide them in project implementation, provides them necessary contacts and
attempts to tackle their problems. At regular intervals ,follow up meetings are held with the
participants which helps in assessing the effectiveness of training.
Q.13 What is Start up India Scheme? What is its aim? (4)
Ans- 1. Startup according to the ministry of Commerce and Industry means an entity incorporated or
registered in India, not older than 5 years, annual turnover does not exceed Rs 25 crore in any
preceding year and its working towards innovation, development or commercialization of products
or services.
2. The startup India campaign was first announced by the Prime Minister of India Shri Narendra Modi
Ji during his 15th August 2015 address from the Red Fort in New Delhi.

3. The startup India scheme is a flagship initiative of the Indian government with the primary
objective of promotion of startups ,generation of employment opportunities and wealth creation.
The scheme has been started to help the people who wish to start their own business and eventually
make India a better economy and a strong nation.

4. The main aim of the scheme is to inculcate entrepreneurial values in the society at large and
influence the mindset of people towards entrepreneurship.

Q.14 What are the features of Start up India Scheme? (5)

Ans- 1. Simplifications are announced to make compliance for startups friendly and flexible.

2. The aim is to create a single point of contact for the entire startup ecosystem and enable
knowledge exchange and access to funding.

3. The objective is to promote awareness and adoption of Intellectual Property Rights by Startups.
4. Startups may be wound up within a period of 90 days from making of an application for winding
up on a fast track basis. This will promote experimentation with new and innovative ideas.

5. The profits of startup initiatives are exempted from income rax for a period of first three years.
Q.15 What are the ways to fund start-ups? (6)

Ans- 1. Bootstrapping-

a) It means starting a business without any external help. It is commonly known as self financing.
b) It is considered as the first funding option because by using personal savings and resources ,
entrepreneur is tied to his business. However, it is a good option of funding only if the initial
requirement is small and handy.

2. Crowd funding-

a) It is the practice of pooling of resources by a group of people for a common goal.

b) The emergence of platforms that promote crowdfunding is fairly recent to India. They help start
ups or small business to meet their funding requirements.

3. Angel Investment-
a) Angel investors are individuals with surplus cash and a keen interest to invest in upcoming
startups.
b) They also offer mentoring or advice alongside capital. They have helped to startup many
prominent companies including , Google, Yahoo and Alibaba. They invest lesser amounts than
venture capitalists.

4. Venture Capital-

a) They are professionally managed funds who invest in companies that have huge potential.
b) They invest in a business against equity . They provide expertise, mentorship and evaluating the
business from the sustainability and scalability point of view.

5. Business Incubators and Accelerators-

a) Incubators are like a parent to a child , who nurture the business providing shelter tools and
training and network to a business .

b) Accelerators do the same thing, but they help business to take big steps. Incubator is a tool for
the childhood of a startup while accelerators can guide entrepreneurs from adolescence to
adulthood.

6. Microfinance and NBFC's-

a) Microfinance is basically access to capital to small scale entrepreneurs that lack access to
conventional banking capital or loans. Individuals with poor credit ratings approach them .

b) NBFC's give out loans to individuals who seek loans ,without necessarily imposing any legal
requirements like conventional banks and credit repair services do.

Q.16 What are Intellectual Property Rights? What is its importance? (4)
Ans- It refers to products or creations of human minds , like inventions, literary and artistic works,
symbols, names images and designs used in business.
Importance of IPR's are as follows-

1. It encourages creation of new inventions like cancer cure medicines.

2. It allows the work created by a person to be distributed and communicated to the public only
with his or her permission . Therefore, it helps in the prevention of loss of income.

3. It helps authors ,creators, developers and owners to get recognition for their work.
Q.17 Explain the types of IPR's. (4)

Ans- 1. Patent
a) It is a type of IPR which protects the scientific inventions (products or processes) which shows
technical advancement over the already known products.

b) For an invention to be patentable, it must be new and must be capable of industrial application
i.e capable of being used or manufactured in the industry.

Patent can only be filed to get rights over invention and not discovery.

2. Copyright-
a) It is a right conferred upon the creators of literary ,artistic, musical, sound recording ,etc It is the
exclusive right of the creator which includes reproducing and distributing copies of the subject
matter .

b) It includes- Literary work like books, novels, lyrics, etc; Artistic work like drawings, paintings, logos,
etc; Dramàtic work like dance, musical work, sound recording, etc.

3. Trademark-

a) It is any word, name , symbol, colour combination, label, logo, packaging, etc that lets us identify
the goods made by an individual, company , organisation, etc.
b) It helps us differentiate the goods of one company from another. Registration of trademark is not
mandatory but registration of trademark helps establish exclusive rights over the mark.

4. Trade Secrets-
a) It refers to any valuable information that is not publicly known and of which the owner has taken
reasonable steps to maintain secrecy.

b) Some examples are- Process for converting raw materials into other usable materials , recipes for
food or food products, Chemical formulas for cleaning products and technological processes , etc.