Important Questions for CBSE Class 11 Business Studies Chapter 9 – Small Business

Q.1 What are the parameters that can be used to measure the size of a business unit?

Ans

Number of employees, capital invested, volume of output, value of production, power consumed are the general parameters that can be used to measure the size of a business unit.

Q.2 Explain the role of Small Business specifically to the 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:

1. Small scale industries utilise local resources and provide employment opportunities for the weaker sections of the societies.
2. 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.
3. 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.
4. Small business in rural areas reduces the inequality of income between rural and urban areas.

Q.3 What do you know about the World Association for Small and Medium Enterprises?

Ans

WASME is an international Non-Government Organisation of micro, small and medium enterprises based in India. It is working for the sustainable growth of rural enterprises. It promotes the non-farm sector by initiating various schemes. For instance, there are various schemes for entrepreneurship through subsidised loans like Integrated Rural Development Programme, Prime Minister Rojgar Yojana, schemes to provide skills like Training of Rural Youth for Self Employment and schemes to strengthen the gender component like Development of Women and Children in Rural Areas.

Q.4 State the classification of small scale manufacturing enterprises as per the MSMED Act.

Ans

As per the MSMED Act, 2006, small scale manufacturing enterprises are classified into the following on the basis of their investment in plant & machinery:
i. Micro Enterprises- investment upto ₹ 25 lakh

ii. Small Enterprises- investment above ₹ 25 lakh & upto ₹ 5 crore

iii. Medium Enterprises- investment above ₹ 5 crore and upto ₹ 10 crore

Q.5 Give a brief note on the administrative setup made by the Government of India for Small Scale Industry.

Ans

The Government of India created the ministry of Small Scale Industries and Agro and Rural Industries as the nodal ministry for formulations of policy and coordination of central assistance for the promotion and development of small scale industries. The Ministry was bifurcated into two separate ministries Ministry of Small Scale Industries and Ministry of Agro and Rural Industries in September, 2001.

These two ministries are responsible for the policies, programs & schemes for promotion and growth of SSIs; and act as the nodal agency for the development of Village & Khadi industries, micro enterprises, respectively.

However, per a Presidential amendment, as on 9^th May, 2007, the Ministry of Agro and Rural Industries and the Ministry of Small Scale Industries have been merged into a single Ministry- ‘Ministry of Micro, Small and Medium Enterprises (MSME)’.

Q.6 ‘SSIs in our country enjoy a distinct position in view of their contribution to the socio-economic development of the country.’ Explain the statement highlighting the facts.

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 areable to give emplyment 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.7 Write a note on the programme iniated by government for promotion of women entrepreneurs for developing SSI units.

Ans

The programme initiated by government for promotion of women entrepreneurs is the – Rural and Women Entrepreneurship Development programme.

It provides the following services for promoting entrepreneurship:

i. Helps in creating business environment which encourages initiatives of women and other entrepreneurs

ii. Works towards enhancing the human and institutional capacities to improve productivity of small business units

iii. Provides training and training manuals for women entrepreneurs

iv. Provides any advisory services required

Q.8 The path of small scale industries is full of hurdles. Comment on the problems faced by small scale industries.

Ans

Small Business Units are facing various problems due to different factors, mainly due to the small size of units.

Followings are the main problems faced by Small Business Units:

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 competiton in terms of technological skills, financial credit worthiness, mareketing capabilities. The large firms are able to cut the cost without compromising on quality due to the economies of large scale, it creates problem for the small units to face the competition.

Q.9 Give a note on the institutional support extended to small scale units in India.

Ans

The institutional support to small scale enterprises is in the following forms:

National Small Industries Corporation (NSIC): This was established in 1955, to promote, aid & foster the growth of small business units in India.

It renders the following primary functions:

i. Exporting the products of small enterprises and developing their export worthiness

ii. Supplying original & imported machines on easy hire – purchase terms

iii. Obtaining, supplying & distributing original and imported raw materials

iv. Creating awareness on technology upgradation

District Industries Centres (DICs): It was launched on May 1, 1978, to provide an integrated administrative framework at the district level. They provide all the services & support facilities to the entrepreneurs in setting up small & village industries. It helps by:
i. Arranging for credit, machinery & equipment
ii. Provision of raw materials & other extension services

iii. Identification of suitable schemes

iv. Preparation of feasibility reports

Q.10 State the classification of Small business as given in the MSMED Act.

Ans

As per the MSMED Act, 2006, small scale enterprises are bifurcated into:

Manufacturing Enterprises: These are enterprises which are engaged in manufacture/ production of goods.

Service Enterprises: These are enterprises which are engaged in rendering / providing services.

Manufacturing enterprises are further classified into the following on the basis of their investment in plant & machinery:

i. Micro Enterprises- investment upto ₹ 25 lakh

ii. Small Enterprises- investment above ₹ 25 lakh & upto ₹ 5 crore

iii. Medium Enterprises- investment above ₹ 5 crore and upto ₹ 10 crore

Service enterprises are further classified into the following on the basis of their investment in plant & machinery:

i. Micro Enterprises- investment upto ₹10 lakh

ii. Small Enterprises- investment above ₹ 10 lakh & upto ₹ 2 crore

iii. Medium Enterprises- investment above ₹ 2 crore and upto ₹ 5 crore

Q.11 Give a short note on the Rural Small Business Development Centre (RSBDC).

Ans

Rural Small Business Development Centre (RSBDC) is set up by World Association for Small and Medium Enterprises and promoted by NABARD. This institution works for the benefit of socially and economically disadvantaged individuals and groups. It provides management and technical support to current and prospective micro and small entrepreneurs in rural areas. Since its inception, RSBDC has organised several programmes on rural entrepreneurship, skill upgradation workshops, mobile clinics and training programmes for trainers, awareness and counseling camps in various villages.

Q.12 Write the functions performed by NABARD.

Ans

NABARD (National Bank for Agriculture and Rural Development) is working for promoting integrated rural development by performing the following functions:

1. It provides credit facility to the small industries, cottage and village industries, and artisans working in rural areas.
2. It provides counseling and consultancy to the rural entrepreneurs.
3. It organises training and development programmes for rural entrepreneurs.

Q.13 The ‘village and small industries sector’ in India is divided in two parts separate categories traditional and modern. Which type of small industries falls under modern industries?

Ans

The whole small industries sector has been divided into eight subgroups which are handlooms, handicrafts, coir, sericulture, khadi and village industries, small scale industries and powerlooms. The last two come under modern industries.

Q.14 State the classification of service enterprises as per the MSMED Act.

Ans

As per the MSMED Act, 2006, service enterprises are further classified into the following on the basis of their investment in plant & machinery:

i. Micro Enterprises- investment upto ₹ 10 lakh

ii. Small Enterprises- investment above ₹ 10 lakh & upto ₹ 2 crore

iii. Medium Enterprises- investment above ₹ 2 crore and upto ₹ 5 crore

Q.15 How do small scale industries contribute to socio economic development of India?

Ans

Indian society has various problems like unemployment, scarcity of capital, unbalanced regional development, economic inequality etc. Small scale industries help in solving these problems and help in the socio- economic development in following manner:

1. Small scale industries are labour intensive and provide employment to large number of people in rural areas where large industries cannot be set up.

2. Small scale industries prevent concentration of economic power and lead to wide dispersal of income as the small business units can be started with less capital and an individual can manage and run.

3. Small scale industries facilitate regional balanced development by setting up industries in rural areas. It prevents the migration of people from rural areas to urban areas.

4. Small scale industries use entrepreneurial abilities and unutilised savings of people in remote areas. It helps in raising the living standard in rural and backward areas.

5. Small scale industries provide valuable support to large scale industries by supplying them necessary inputs or distributing the final output. It shows the importance of this sector for the whole economy.

Q.16 What is a Micro manufacturing enterprise?

Ans

A ‘Micro’ manufacturing enterprise is an enterprise which has investment in plant & machinery upto ₹ 25 lakh.

Q.17 Why does the Government of India use the capital investment in plant and machinery as a base to define the status of small industries?

Ans

It is due to the socio-economic environment in India where capital is scarce and labour is abundant.

Q.18 When did the Government of India bifurcate the Ministry of Small Scale Industries and Agro and Rural Industries?

Ans

It was bifurcated in September, 2001 into two separate ministries the Ministry of Small Scale Industries and the Ministry of Agro and Rural Industries.

Q.19 How do the state governments execute central or state level schemes for the promotion of SSIs?

Ans

The state governments execute promotion schemes through District Industries Centers (DICs) which are set up under State Directorate of Industries.

Q.20 How can the development of rural and village industries help in preventing migration of rural population to urban areas?

Ans

With the development of rural and village industries the rural population can get employment in their areas, which will reduce their migration to urban areas.

Q.21 What is the incentive ‘Tax holiday’ given to SSIs?

Ans

Industries established in backward areas, hilly and tribal areas may be given exemption from paying taxes for 5 or 10 years.

Q.22 What was the primary purpose behind setting up the SIDBI?

Ans

Small Industries Development Bank of India (SIDBI) was set up to provide direct and indirect financial assistance under different schemes.

Q.23 What are the objectives of National Commission for Enterprises in the Unorganised Sector (NCEUS)?

Ans

Followings are the main objectives of NCEUS:

i. Improving the Productivity: To help in improving the productivity of small enterprises working in unorganised sector.

ii. Generating Employment: To generate more employment opportunities by promoting small businesses in rural areas.

iii. Providing Competitiveness: To provide help in making the small businesses more competitive in the emerging global business environment.

iv. Establishing Relations: To help small businesses arrange finance, raw materials, infrastructure, technology upgradation, marketing and skill development from the respective agencies providing them.

Q.24 What is the role of National Small Industries Corporation (NSIC)?

Ans

NSIC was set up to foster growth of small business units. Its functions are:
i. Supplying indigenous and imported machines on hire-purchase terms
ii. Procuring and distributing raw materials
iii. Exporting products of the SSI units
iv. Creating awareness of technological up gradation
v. Providing advisory services
vi. Developing software technology parks

NSIC has implemented a scheme of ‘performance and credit rating’ of small business for making them understand the need for credit rating and encouraging them to maintain good financial track record, which will help them in procuring funds for financial institutions.

Q.25 How do lack of managerial skills, lack of quality and global competition pose problems for SSIs?

Ans

Small scale businesses face certain problems vis-à-vis large businesses.

Lack of managerial skills- Small units are generally stated by single individuals, who may not possess all the required managerial skills. Many of them possess sound technical knowledge but may lack administrative, financial or marketing skills. Moreover they may not be able to afford to employ professional managers.

Lacks of quality- Small units are not able to adhere to standards of quality of their product, since they concentrate on cost cutting and keeping prices low. They do not posses resources for investing in research activities and for upgrading their technology.

Global Competition- Small Units face cut throat competition not only from medium and large units, but also from multinational companies, which operate on large volumes. It becomes difficult for small businesses to withstand competition posed by the technological skills, financial creditworthiness, managerial and marketing capabilities of the larger businesses. Moreover, there is limited access to markets of developed countries, due to the stringent requirements of quality of these countries.

Q.26 Jagat Singh has set up a food processing unit in a hilly area in Assam. State the common incentives offered by government to his unit.

Ans

Following are some common incentives offered to promote the industrial activities in backward, tribal and hilly areas:

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 instalments 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 of 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 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.

Industrial estates: Some states encourage setting up of industrial estates in backward areas. In the areas where government wants to establish more industries, various schemes are implemented. To boost the industrial activities SEZs and EPZs have been established by government.

Tax holiday: Tax holiday is a term used for the schemes under which some industries are exempted from tax for some specified period. Exemption from paying taxes for 5 or 10 years is given to industries established in backward, hilly and tribal areas.

Q.27 ‘Keeping in view the contribution of small business, the Government has provided an effective institutional support in the country’. Give a brief on some of the institutions set up to help small business.

Ans

Followings are the main institutions setup for the promotion of small and rural industry in India:

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, counseling and consultancy services and organising training programs.

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.

National Small Industries Corporation (NSIC): NSIC was set up in 1955 to foster growth of small business units. It supports the commercial aspect of the business, such as:
i. Supplying machines on hire-purchase terms
ii. Procuring and distributing raw materials
iii. Exporting products of the SSI units
iv. Creating awareness of technological up gradation
v. Developing software technology parks
NSIC has also implemented a scheme of ‘performance and credit rating’ of small businesses.

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.

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.28 Explain the Scheme of Fund for Regeneration of Traditional Industries (SFURTI).

Ans

The Central Government set up the fund named Scheme of Fund for Regeneration of Traditional Industries (SFURTI) with ₹ 100 crores to make the traditional industries in India more productive and competitive and to facilitate their sustainable development. At its initial stage in the year 2005 the scheme was to be implemented by the Ministry of Agro and Rural Industries in collaboration with State Governments.

However, on 9^th May, 2007, the Ministry of Agro and Rural Industries and Ministry of Small Scale Industries have been merged into a single Ministry, named, ‘Ministry of Micro, Small and Medium Enterprises’.

The ministry of MSME has introduced the programme all over India. The main object of scheme is to improve the economic conditions of traditional industries with the help of SFURTI programme.

Followings are the other main objects of the scheme:
a) To help in the development of clusters of traditional industries.
b) To build innovative and traditional sills, improve technologies and encourage public private partnerships.
c) To promote employment opportunities in traditional industries.

Q.29 State some of the common incentives offered by government to boost industrial development of backward, tribal and hilly areas.

Ans

Following are some common incentives offered to promote the industrial activities in backward, tribal and hilly areas:

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 instalments 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 of 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 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.

Q.30 What is a Medium service enterprise?

Ans

A ‘Medium’ service enterprise is an enterprise which has investment in plant & machinery above ₹ 2 crore and upto ₹ 5 crore.

Q.31 What do you mean by Village Industries?

Ans

Any industry located in a rural area, producing any goods or any services with or without use of power, in which the fixed capital investment per worker does not exceed 50,000 rupees or such other sum as may be specified by the central government, is called Village Industry.

Q.32 Maya Devi’s printing unit employs nine lakh rupees worth of plant and machinery. Can her unit get the status of ‘Micro Business Enterprise’?

Ans

The investment in plant and machinery of a Micro Business Enterprise should not exceed twenty five lakh rupees, hence Maya Devi’s unit can get the status of a Micro Business enterprise.

Q.33 Certain small scale handloom industries have been set up in a few villages in Orissa. How will thess help in preventing migration of rural population to urban areas?

Ans

With the development of rural and village industries the rural population can get employment in their own areas, which will reduce their migration to urban areas.

Q.34 Delano Foods Limited set up its new unit of food and beverages processing in rural areas of Uttarakhand and chose to use labour intensive methods as there was easy availability of labour and also there will be employment opportunities to local people. The company decided to acquire plant and machinery for ₹55 lakhs, ₹1 crore to buy land for the unit and ₹15 Lakhs to buy raw material and ₹20 lakhs to maintain daily expenses.

(i) Identify the act of Industries that is applicable to the Delano Foods Limited.

(ii) Under which category of part (a) will Delano Foods be classified as?

(c) State the investment limit for the category identified in (b) above.

Ans

(i) The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 is applicable to problems and issues relating to definition, credit, marketing and technology upgradation for such industries.

The medium scale enterprises and service related enterprises also come under the monitoring of this Act.

The MSMED Act, 2006 was implemented in October, 2006. According to the act, the enterprises are classified into two major categories i.e. manufacturing and services.

(ii) Delano Foods can be classified as small enterprise as per the MSMED Act, 2006.

Small scale manufacturing enterprises are classified on the basis of their investment in plant and machinery above ₹25 lakh and upto ₹5 crore.

(iii) The investment limit for small scale industries as per the MSMED Act, 2006 is above ₹25 lakh and upto ₹5 crore in plant and machinery.

Q.35 Sam is an engineer who plans to start his own firm near a village area. To avail some assistance, he approached one of his friends who worked with the ministry that looks after the development of small scale industries in India. His friend advised him to visit the district Industrial Centre setup in his district as it would help Sam to seek the necessary support required to start the business.

(i) State the major aim of DIC

(ii) Explain how DIC helps in setup and development of small businesses in India.

Ans

(i) DIC’s aims to provide an integrated administrative framework at the district level and look after the problems of industrialisation in the district.

(ii) District Industries Centres (DICs) provide all the services and support facilities to the entrepreneurs in setting up small and village industries. It helps by:

• Arranging for credit, machinery & equipment
• Provision of raw materials & other extension services
• Identification of suitable schemes
• Preparation of feasibility reports

Q.36 Gaurav works in an MNC and has saved money to start his own business enterprise. He resigned from his job and decided to setup a handicraft industry in his hometown village and help in the development of his village. However, he didn’t have much knowledge about how to setup business or from where to acquire facilities for the business. So, his friend told him about the different support organisations and benefits that government offers to help business entrepreneurs seeking to start their business firm, especially for development of rural and backward areas.

State some of the benefits that government offers for business owners starting their business in rural areas.

Ans

Benefits that government offers for business owners starting their business in rural 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 instalments 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 of 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 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.

Q.37 One of the Marketing assistance schemes provided by the Ministry of Micro, Small and Medium Enterprises involves Procurement and Marketing Support Scheme (P&MS). It aims to encourage Micro and Small Enterprises (MSEs) in development of domestic markets and promotion of new market access initiatives. It also helps in facilitation of facilitate market linkages for effective implementation of Public Procurement Policy for MSEs and creates an overall awareness about trade fairs, latest market technique and other such related topics etc. To avail the scheme, eligible MSEs are required to submit their application online. There are many other such schemes that works as a strategic tool for development of small scale industries in India.

Can you state some of the institutions that helps the Ministry of Micro, Small and Medium enterprises in providing assistance to small and medium industries?

Ans

Institutions that helps the Ministry of Micro, Small and Medium enterprises in providing assistance to small and medium industries are:

• National Bank for Agriculture and Rural Development (NABARD): It was set up in 1982 and focusses on uplifting rural India by increasing the credit flow for elevation of agriculture and rural non-farm sector.
• National Small Industries Corporation (NSIC): This was established in 1955, to promote, aid and foster the growth of small business units in India.
• District Industries Centres (DICs): It was launched on May 1, 1978, to provide an integrated administrative framework at the district level. They provide all the services and support facilities to the entrepreneurs in setting up small and village industries.
• The Rural Small Business Development Centre (RSBDC): It is sponsored by NABARD and works for the benefit of socially and economically disadvantaged individuals and groups. It aims at providing management and technical support to new and prospective small entrepreneurs in rural areas.
• Rural and Women Entrepreneurship Development (RWED): It was established with the purpose of building institutional and human capacities which encourage and support the entrepreneurial initiatives of rural people, especially women.

Q.38 National Institute for Micro, Small and Medium Enterprises (NI-MSME) is a national level institute that aims in development of micro, small and medium enterprises in India under Ministry of Micro, Small and Medium Enterprises. The Institute helps in dealing with the issues faced by entrepreneurs establishing small business firms and works in the field of capacity building, skill upgradation, job enrichment and, training for development of entrepreneurship skills along with empowerment of women to pursue small business with the help of Incubation center at NI-MSME.

What do you think are the challenges faced by entrepreneurs for starting small businesses?

Ans

• 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 are able to cut the cost without compromising on quality due to the economies of large scale, it creates problem for the small units to face the competition.

Q.39 Rohit went for the industrial visit along with his class on their field trip. He was surprised with the steep size of the firm and the equipments used for the production. He was excited and wanted to discuss with his father regarding the same. He asked his father to set up their business on the same lines. His father informed him that it would not be possible for them to do so because of the various problems they might have to face being a small-scale business. Explain in detail any three problems faced by such small-scale firms.

Ans

Generally small scale businesses face the following problems:

1. Finance: Small scale units lack the credit worthiness that is required to raise capital. These units rely heavily on local financial resources and so are the victims of exploitation by the money lenders
2. Raw Material: Bargaining power of SSIs is relatively low due to the small quantity of purchases. In case the required materials are not available, they have to compromise on the quality or even pay high to get good quality materials.
3. Managerial skills: SSIs are operated by a single person, who may not possess all the managerial skills required to run the business.
4. Marketing: It is the weaker area of small organisations. These organizations depend more on middlemen, who at times exploit them by paying low price and delayed payments.

Q.40 Many small business firms often opt for local lenders so as to fund their business. It often results in payment of high interest rates an exploitation of small business owners. These business firms do not have adequate assets so they don’t have access to capital markets. Identify the limitation of small business being stated here.

Ans

The limitation of small business stated here is Lack of financial resources.

Small scale units lack the credit worthiness that is needed for raising capital. Hence, they depend on heavily on local finance lenders and so are the victims of exploitation by these money lenders.

Q.41 Hitesh decided to start a business of selling toys. He established a production unit in a rural area. The investment required to setup the business was `30 lakhs. The shop manufactured good quality toys at reasonable prices.

1. State the category under which Hitesh’s Toy shop can be categorised as per MSMED Act.
2. Also, give any two benefits of small scale business firms.

Ans

(i) The category under which Hitesh’s Toy shop can be categorised as per MSMED Act, 2006 is small-scale enterprise.

Small enterprises are classified on the basis of their investment in plant and machinery above `25 lakh and up to `5 crore.

(ii) Benefits of small scale business firms:

• Small scale industries are labour intensive and provide employment to large number of people in rural areas where large industries cannot be set up.
• Small scale industries facilitate regional balanced development by setting up industries in rural areas. It prevents the migration of people from rural areas to urban areas.

Q.42 Over the last two decades, many International firms have entered Indian markets which have diverted the attention of consumers from Indian firms, especially small businesses. State how global competition has affected the small business firms in India?

Ans

Apart from

Following are some areas where small business firms face threat from the global firms:

• Small business firms face high level of competition not only from large business, but also from multinational corporations which provide diverse range of products and services and pose a threat to small business firms.
• It is not easy for small business firms to compete with the quality standards, financial resources, managerial capabilities, technological upgradation and promotional efforts of large industries and multinationals.
• Due to adherence to quality standards like ISO 9000 and strict requirements, small business have limited access to developed countries

Q.43 A clothing boutique is considered to be a good business for women, especially housewives as it can help them become financial independent. It requires good fabric material that can be acquired from different places and offered in one place. Also, in the beginning, such business requires promotion so that people get to know about the store. However acquiring raw material and marketing activities sometimes pose a problem for small businesses. Explain.

Ans

• 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.
• Marketing: It is an important aspect of business as it helps in increasing the sales and profitability. Effective promotional activities involve a good understanding of what customer wants. In many cases, small business often face problem with regard to marketing and hence depend on middlemen for promoting their business, who may charge high prices. Also, due to lack of infrastructure, direct marketing is not considered adequate for small businesses.

Q.44 The MSMED Act, 2006 provides a legal framework that organises and recognises the different enterprises related to both manufacturing and service entities. It categorises such enterprises and seeks to integrate the three-tier classification of these enterprises into micro, small and medium enterprises. With regard to the MSMED Act, state the three-tier classification of small businesses involved in providing services.

Ans

As per MSMED Act, 2006, the service enterprises are classified into the following on the basis of their investment in plant & machinery:

• Micro Enterprises- It involves investment upto ₹10 lakh.
• Small Enterprises- It involves investment above ₹10 lakh and upto ₹2 crore.
• Medium Enterprises- It involves investment above ₹2 crore and upto₹ 5 crore.

Q.45 Carpet Making is one of the oldest cottage industry in India. Its origin can be traced back to the Mughal era. It is mainly established in states of Punjab, Uttar Pradesh, Kashmir, Rajasthan, and Andhra Pradesh. Due to its high quality, Kashmiri carpets and durries have a huge demand. Also, Indian government has established Carpet export council that is responsible for promoting the exports of the carpets, rugs and various other types of floor coverings manufactured from various states.

1. State the meaning of cottage industry.
2. Give the characteristics of cottage industry.

Ans

(i) Cottage industries are also referred to as rural industries or traditional industries. These are small scale industry that can be setup with low investments. The manufacturing of goods is done using conventional methods in the houses of the business owners.

(ii) The characteristics of cottage industry are:

• Cottage industry are organised by individuals having their own resources
• These involve use of family labour and locally available talent
• It requires simple equipment for making products.
• The investment requirement for cottage industry is low as the products are manufactured within the premises of the owners.
• They involve use of indigenous methods to manufacture goods.

Q.46 State true or false.To address the problems faced by industries setup at district level, the government established an administrative framework that is managed by Industrial trade Centre.

Ans

False.

To address the problems faced by industries setup at district level, the government established an administrative framework known as District Industrial Centre (DIC) on 1st May, 1978.

Q.47 An institution is setup in India that organises programmes for a large number of unemployed youth and women in rural areas with respect to learning trade in different areas like toys making, food processing, etc. Identify the name of the institution.

Ans

The Rural Small Business Development Centre is sponsored by NABARD. It aims to provide social and economic benefits to the disadvantaged groups in the society. It organises programmes for a large number of unemployed youth and women in rural areas with respect to learning trade in different areas toys making, food processing, readymade garments, candle making, incense stick making, automobile repairing and servicing, etc.

Q.48 In India, the government setup an institution that provides additional support in the form of extending credit and non-credit facilities to small industries, cottage and village industries, and other rural industries. Name and sate the objective of institution highlighted here.

Ans

The National Bank for Agriculture and Rural Development was established in 1982 and aims at promoting the development of rural areas with respect to agricultural activities.

NABARD provides additional support in the form of extending credit and non-credit facilities to small industries, cottage and village industries, and other rural industries. It organises training programmes for rural entrepreneurs along with counselling and consultancy services.

Q.49 The government of India setup a scheme that promotes the development and growth of traditional industries in India. The scheme primarily aims at establishing clusters of traditional industries in different areas in the country. Identify and explain the scheme of government being discussed here.

Ans

The scheme of government being discussed above is Scheme of Fund for Regeneration of Traditional Industries (SFURTI). It aims to make the traditional industries in India more productive and competitive and facilitate their sustainable development.

The ministry of MSME has introduced the programme all over India. The main object of scheme is to improve the economic conditions of traditional industries with the help of SFURTI programme.

Followings are the other main objects of the scheme:

• To help in the development of clusters of traditional industries.
• To build innovative and traditional sills, improve technologies and encourage public private partnerships.
• To promote employment opportunities in traditional industries.

Q.50 In India, small business have to face difficulties while setting up their business with respect to limited availability of funds, lack of organisational skills and not able to comply with legal formalities. However, many women entrepreneurs have analysed such issues and planned to launch their own businesses. The SMEs managed by women are not just limited to handicraft work or clothing, but are now expanding into fields like data analytics, marketing, accountancy, consultancy, etc.

1. How does government help in supporting women as owners of business in India?
2. State the role of institution identified in (i) above.

Ans

(i) The programme initiated by government for promotion of women entrepreneurs is Rural and Women Entrepreneurship Development programme.

It aims at providing an environment and focuses on increasing the human and institutional capacities that encourage the entrepreneurial ventures setup by women.

(ii) RWED provides the following services for promoting entrepreneurship:

• Helps in creating business environment which encourages initiatives of women and other entrepreneurs
• Works towards enhancing the human and institutional capacities to improve productivity of small business units
• Provides training and training manuals for women entrepreneurs
• Provides any advisory services required

Q.51 In 2019, National Small Industries Corporation (NSIC) along with Small and Medium Business Corporation (SBC) of South Korea established India-Korea Technology Exchange Centre (IKTEC) at technical service centre owned by NSIC in Okhla. A Memorandum of Understanding (MoU) between NSIC and SBC, South Korea for ensuring cooperation between the Micro, Small and Medium Enterprises (MSMEs) of both the countries. Under IKTEC platform, both Indian and Korean MSMEs would be assisted to focus on latest technologies, product development, new machinery, technology applications for development and share expertise with each other.

1. State the role of NSIC in development of small scale firms in India.
2. Give any other two institutions that support the development of small scale industry.

Ans

(i) National Small Industries Corporation (NSIC): This was established in 1955, to promote, aid and foster the growth of small business units in India.

It renders the following functions:

• Exporting the products of small enterprises and developing their export worthiness
• Supplying original and imported machines on easy hire=purchase terms
• Obtaining, supplying and distributing original and imported raw materials
• Creating awareness on technology upgradation

(ii) Other institutions that support the development of small scale industry:

• District Industries Centres (DICs): It was launched on May 1, 1978, to provide an integrated administrative framework at the district level. They provide all the services and support facilities to the entrepreneurs in setting up small and village industries.
• Rural Small Business Development Centre (RSBDC): It is sponsored by NABARD and works for the benefit of socially and economically disadvantaged individuals and groups. It aims at providing management and technical support to new and prospective small entrepreneurs in rural areas.

Q.52 Reema started a restaurant in Kolkata, West Bengal. She made an investment of ` 23 lakh which included

• ₹ 12 lakh as cost of the premises

• ₹ 8 lakh for furniture and equipments

• ₹ 3 lakh on miscellaneous expenses like advertisement, etc.

Identify the category of small scale business that Reema is into.

Ans

According to MSMED Act, 2006, Reema’s unit can be classified as a Service Enterprise as it renders services of a restaurant.

A service enterprise is one that is engaged in rendering or providing services.

Reema’s unit can be further categorised as a Micro Enterprise as the total investment made in terms of plant and machinery is ₹ 8 lakh.

A micro enterprise is a small scale unit where in investment in relation to equipments (excluding land and building) are made up to ₹ 10 lakh.

Q.53 With an initial investment of ₹ 7 crore, Tarun started an auto component manufacturing unit at Rewari, Haryana. The investment comprised

• ₹ 3.5 crore on the premises

• ₹ 65 lakh on furniture and fittings

• ₹ 2.45 crore on machineries and equipments

• ₹ 40 lakhs on raw materials

After 2 years, he bought 4 more machineries of latest technology costing ₹ 3.45 crore. Identify the category of small scale business that Tarun Auto is into.

Ans

According to MSMED Act, 2006, Tarun’s unit can be classified as a Manufacturing Enterprise as it manufactures auto components.

A manufacturing enterprise is one that is engaged in manufacturing or production of goods.

Tarun’s unit can be further categorised as a Medium Enterprise as the total investment made in terms of plant and machinery in the unit is more than ₹ 5 crore (2.45 + 3.45).

A medium enterprise is an enterprise where in investment on plant and machinery is more than ₹ 5 crore and up to 10 crore.

Q.54 Anupam Kumar is in the process of establishing a small scale hand-making naturally-dyed silk and wool textile in on his ancestral land in Kumaon district, Uttaranchal.

He would use solar energy in the production and processing and will set up a rainwater harvest system for natural dyeing and other activities. However, he needs additional finance for purchasing machinery. He is also concerned about the impending imposition of additional taxes after the Union Budget.

Can you give any suggestions to Anupam for solving his problem regarding procurement of finance & imposition of taxes?

Ans

The incentives provided by the government can help solve Anupam’s issues:

• Finance- For building fixed assets, subsidies ranging between 15% to 20% are given. Subsidised loans are also offered.

• Tax holiday- Units in backward areas are exempted from paying taxes for 5- 10 years.
• Sales Tax- States may exempt for 5 years.

Q.55 Since 2000, the DIC at Angul, Orissa is functioning to provide various support services to potential entrepreneurs under single roof.

The aim and objective of DIC is to promote Micro, Small and Medium Enterprises along with ancillary and downstream industries, Handicraft and Cottage Industries and implementation of government sponsored program and scheme of Orissa Khadi & Village Industries, Bhubaneswar.

What actions do you are undertaken by DIC Angul for fulfilling its objectives?

Ans

For fulfilling their objective of providing various support services to potential entrepreneurs, District Industry Centers like DIC Angul help entrepreneurs in:

• Acquiring credit, machinery & equipment
• Providing raw materials & other extension services
• Identifying suitable schemes
• Preparing feasibility reports

Q.56 The Credit Rating Information Services of India Limited (CRISIL), along with the National Small Industries Corporation (NSIC), rates Small Scale Industries (SSIs) on a special rating scale. The government has presently subsidised the fees for this rating by up to 75 per cent, to enable small enterprises to get themselves rated.

Any enterprise registered in India as an MSME enterprise can benefit from this rating by bringing a proof of eligibility i.e. a registration certificate issued by the District Industry Centre (DIC) or the Directorate of Industries. How would any enterprise be benefitted with credit ratings provided by CRISIL?

Ans

The credit ratings provided by CRISIL in association with NSIC, would help small scale industries in ensuring a higher credit rating for the units.

A higher credit rating would enable the small units to obtain finance for working capital and investment requirements easily.

Q.57 Ramesh wanted to start a small scale firm with the help of benefits offered under MSMED Act, 2006. He made an investment of ₹ 9 crore in plant & machinery and opened a medicine manufacturing firm in Baksa district in Assam. After few weeks, he imported a fully automated equipment of around ₹ 1.5 crore. He applied for registration under the Act, however, his application got rejected. Why was the application rejected?

Ans

Ramesh’s application was rejected as the unit run by him does not fall under the category of a small scale unit as per the MSMED Act, 2006.

Ramesh is running a manufacturing enterprise. He made an investment of around ₹ 9 crore in plant and machinery. However, after his investment in automated equipment of ₹ 1.5 crore, the investment crossed ₹ 10 crore. According to MSMED Act, 2006, manufacturing enterprise are enterprises whose investments in plant and machinery are upto ₹ 10 crore only.

Q.58 Rehan wants to start his own enterprise as he wants to be his own boss and doesn’t like takin g orders from others. (4 marks)

Answer the following based on the above context:

i. State the concept that is being referred to here.

1. IPR
2. Entrepreneurship
3. ED
4. Small Business

ii. Upto a period of seven years from date of incorporation, what will the new enterprise known as?

1. Startup
2. Pilot company
3. EDP enterprise
4. Crowd funded enterprise

iii. Most entrepreneurs acquire their first customers through their existing networks- Friends and Family. Choose from the following, one other such source of funding available to entrepreneurs.

1. Bank Loan
2. MSME’s credit
3. Equity
4. Angel and seed investors

iv. What merit of entrepreneurship is expressed here?

1. Easy Loans
2. No dependency
3. No tax for few years
4. No risk

Ans

i. Answer: b.

Entrepreneurship development is the process of improving the skills and knowledge of entrepreneurs through various training and classroom programs. The whole point of entrepreneurship development is to increase the number of entrepreneurs.

ii. Answer: a.

Startup means an entity, incorporated or registered in India upto a period of seven years from date of incorporation/registration or upto ten years in case of Startups in Biotechnology sector.

iii. Answer: d.

Most entrepreneurs acquire their first customers through their existing networks- Friends and Family. Other sources being crowd funding, angel and seed investors, bootstrapping option, venture capital, business incubators & accelerators, government programs that offer start up capital e.g., MUDRA, etc.

iv. Answer: b.

One of the merits of entrepreneurship is no dependency and freedom to work. Though there is a risk factor involved but the gains are not shared.

Q.59 Rehan wants to start his own enterprise as he wants to be his own boss and doesn’t like takin g orders from others. (4 marks)

Answer the following based on the above context:

i. State the concept that is being referred to here.

1. IPR
2. Entrepreneurship
3. ED
4. Small Business

ii. Upto a period of seven years from date of incorporation, what will the new enterprise known as?

1. Startup
2. Pilot company
3. EDP enterprise
4. Crowd funded enterprise

iii. Most entrepreneurs acquire their first customers through their existing networks- Friends and Family. Choose from the following, one other such source of funding available to entrepreneurs.

1. Bank Loan
2. MSME’s credit
3. Equity
4. Angel and seed investors

iv. What merit of entrepreneurship is expressed here?

1. Easy Loans
2. No dependency
3. No tax for few years
4. No risk

Ans

i. Answer: b.

Entrepreneurship development is the process of improving the skills and knowledge of entrepreneurs through various training and classroom programs. The whole point of entrepreneurship development is to increase the number of entrepreneurs.

ii. Answer: a.

Startup means an entity, incorporated or registered in India upto a period of seven years from date of incorporation/registration or upto ten years in case of Startups in Biotechnology sector.

iii. Answer: d.

Most entrepreneurs acquire their first customers through their existing networks- Friends and Family. Other sources being crowd funding, angel and seed investors, bootstrapping option, venture capital, business incubators & accelerators, government programs that offer start up capital e.g., MUDRA, etc.

iv. Answer: b.

One of the merits of entrepreneurship is no dependency and freedom to work. Though there is a risk factor involved but the gains are not shared.

Q.60 Grab in 2020 announced a Small Business Booster Programme that aims at helping small businesses of Southeast Asia to cope up with the COVID-19 new normal. The world saw dependency on online services grow manifold almost overnight. This programme will help Grab merchant-partners to increase their space online. (3 marks)

i. What kind of enterprises are being given boost to?

1. Departmental Stores
2. Large establishments
3. Small Business
4. Manufacturing enterprises

ii. Why is such business important?

1. Generates Employment
2. Reduces Income Inequalities
3. Low Cost of Production
4. All of the above

iii. Small Business improves the standard of living of rural population. What role is small business is being emphasized here?

1. Generates Employment
2. Low Cost of Production
3. Customised Production
4. Reduces Income Inequalities

Ans

i. Answer: c.

The programme aims at boosting up the Small Business. Small business acts as a powerful instrument for Government. It helps Government in realising twin objectives of:

• • accelerated industrial growth.
  • creating additional productive employment potential in rural & backward areas.

ii. Answer: d.

Small business acts as a powerful instrument for Government. It helps in generation of employment, entrepreneurship & mobilisation of resources, reduction in income inequalities, product diversity, low cost of production, balanced regional development and customised production.

iii. Answer: d.

Small business improves the standard of living of rural population. It ensures equitable distribution of income & wealth by reducing income inequalities between rural and urban people.

Q.61 Software are very much vulnerable to piracy and suffer undue economic loss as it might be accessed by users without payment. These face cutthroat competition in the market. The faster pace of technological advancements has made it important to protect the intellectual property vested in the software, machines and programs. (3 marks)

i. Identify from the following, concept we are talking about.

1. IPRs
2. Technology
3. Virus
4. Economic loss

ii. What does the concept identified in (i) promotes?

1. Partnership
2. Consumer rights
3. Creativity & Innovation
4. Stability

iii. Complete the following sentence:

Owners can control use of their intellectual property to gain _________.

1. financial reward
2. non-financial reward
3. softwares
4. salary

Ans

i. Answer: a.

Intellectual property rights (IPR) are used to protect technology, brand name, design and creativity behind the concept. Acquisition and management of IPR are critical in helping firms transform their innovation potential and creativity into market value and competitiveness.

ii. Answer: c.

Intellectual property rights (IPR) can be used to protect technology, brand name, design and creativity behind the concept. It gives the creator sole ownership of concept, in a similar way to owning physical property like a house or car. Owners can control use of their intellectual property to gain financial reward.

iii. Answer: a.

IPR gives the creator sole ownership of concept, in a similar way to owning physical property like a house or car. Owners can control use of their intellectual property to gain financial reward.