Small Business and Entrepreneurship Class 11 Notes

According to the Industries Development & Regulation Act 1951, any enterprise that employs not more than 50 persons when using power & 100 persons when not using power & with capital assets not exceeding 5 lakhs is known as small-scale industry.

According to the MSMED Act, of 2006, enterprises are classified into 2 categories:
1) Manufacturing Enterprises
2) Services Enterprises

Manufacturing Enterprises

• Micro: Under micro-enterprises, the investment in plant & machinery does not exceed 25 lakhs.
• Small: Under small enterprises, the investment in plant & machinery is more than 25 lakhs but does not exceed 5 crores.
• Medium: Under medium enterprises, the investment in plant & machinery is more than 5 crore but does not exceed 10 crore.

Services

In the case of enterprises engaged in providing services, the enterprises are classified as:

• Micro: Under micro-enterprises, the investment in equipment does not exceed 10 lakhs.
• Small: Under small enterprises, the investment in equipment is more than 10 lakhs but doesn’t exceed 2 crores.
• Medium: Under medium enterprises, the investment in equipment is more than 2 crores but doesn’t exceed 5 crores.

Village Industry

The industries located in rural areas that produce any goods render any service with or without the use of power & in which the fixed capital investment per head is specified by the central government.

Cottage Industries

Cottage industries are the ones that are organized by individuals with private resources and they normally use family labor & locally available talent.
The equipment used is simple, capital investment is small and they produce simple products using indigenous technologies.
These are also known as ‘Rural industries’ or ‘Traditional Industries’.

Role of Small Business in India

1) Small industries in India account for 95% of the total industries in India. They contribute 45% of the total exports from India.

2) Small Industries are the second largest employer of human resources after agriculture. In India, labor-intensive technologies are used.
Therefore, there are more employment opportunities in small industries as compared to large industries.

3) Small industries supply a large variety of products that includes mass consumption goods, ready-made garments, hosiery goods, stationery, soaps, utensils, processed foods & vegetables, etc.

Along with these electronic goods like televisions, calculators, and projectors. Air conditioners, etc are also supplied by these industries.

4) They contribute to the balanced regional development of the country as these small industries can be set up anywhere because they produce simple products using simple technology & locally available resources.

5) Small industries provide ample opportunities for entrepreneurship. The skills & talents of the people can be channelized into business ideas which can be converted into reality with little investment & almost no formalities.

6) As they use very cheap and locally available resources therefore these industries enjoy the advantage of low cost of production.

Their establishment & running costs are also very low. Hence, they enjoy a low cost of production.

Problems of Small Business

1) Finance

One of the major problems faced by small-scale industry is the non-availability of finance. Generally, a small business begins with small capital and as their operation increases the requirement of finance also increases.

As a result, they are heavily dependent on money lenders or commercial banks for supply of credit.

2) Raw Material

The second major problem of small businesses is the procurement of raw materials. If the required material is not available, they have to compromise on the quality or they have to pay a high price to get good quality raw material which they can’t afford.

3) Technology

The use of outdated technology is also a great barrier to the growth of small industries. Outdated technology results in low productivity & uneconomical production.

4) Quality

Small business organizations are not able to maintain quality standards as their main focus is on cutting costs & keeping prices low.

As a result, they are not able to compete in global markets.

5) Managerial Skills

Small business is generally promoted & operated by a single person who may not possess all the required managerial skills.

Also, they are not in a position to hire professional managers.

6) Labor

Small business firms can’t afford to pay higher salaries to the employees. Less amount of salaries result in a lack of motivation.

As a result, present employees are not able to give their 100% which results in low productivity per employee & high employee turnover.

Social Responsibility of Business Class 11 Notes

Government Assistance to These Industries

Incentives

Incentives are special benefits provided to small entrepreneurs to promote the setting up of small businesses in India. It includes:

• Land: Every state offers developed plots for setting up of industries. The terms & conditions may vary.
  Some states don’t charge rent in the initial years while some states allow payments in installments.
• Power: Power is supplied at a concessional rate of 50% whereas some states exempt such units from payment in the initial years.
• Water: Water is supplied at a no profit no loss basis or with a 50% concession or exemption from charges for 5 years.
• Finance: The loans are offered at a concessional rate whereas some states provide subsidies of 10 to 15% for building capital assets.
• Sales Tax/GST: In all union territories, industries are exempted from sales tax while some states provide exemption for 5 years.
• Tax holiday: Exemption form paying taxes is given to industries established in backward, hilly, or tribal areas for 5-10 years.

Institutional Support

a) National Small Industries Corporation

NSIC was set up in 1955 to promote, aid & foster the growth of small business units in the country.

NSIC performs the following functions:

• Supply indigenous imported machines on hire purchase term.
• Procure & supply indigenous & imported raw materials.
• Providing mentoring & advisory services.
• Creating awareness about technological degradation.
• NSIC also makes out a new scheme of performance & credit rating with 2 objectives:
  1) Sensitising the small industries about the mud for credit rating.
  2) Encouraging the small business to maintain a good financial track record.

b) District Industries Centre (DIC)

The DIC program was launched on 1st May 1978. The main aim was to provide an integrated administrative framework at the district level which provides all the services & support facilities to small business units & to look after all their problems.

The main activities undertaken by DIC are:

• Arranging for credit
• Arrangement of machinery & equipment
• Provision of raw materials
• Other support services

DIC also attempts to look after some of the neglected factors like rural artisans, skilled craftsmen & handloom operators.