NCERT Solutions for Class 11 Business Studies Chapter 9 Small Business and Entrepreneurship

Detailed, Step-by-Step NCERT Solutions for 11 Business Studies Chapter 9 Small Business and Entrepreneurship Questions and Answers were solved by Expert Teachers as per NCERT (CBSE) Book guidelines covering each topic in chapter to ensure complete preparation.

Small Business and Entrepreneurship NCERT Solutions for Class 11 Business Studies Chapter 9

Small Business and Entrepreneurship Questions and Answers Class 11 Business Studies Chapter 9

Question 1.
What are the different parameters used to measure the size of the business?
Answer:
Several parameters can be used to measure the size of business units. These include the number of persons employed in business, capital invested in the business, the volume of output or value of the output of the business, and power consumed for business activities, appropriate parameters may be used depending on the need and advantages or limitations of various measures.

Question 2.
What is the definition used by the Government of India for Small Scale Industries?
Answer:
The definition used by the Government of India to describe small industries is based on the investment in plant and machinery. This measure seeks to keep in view the socio-economic environment in India where capital is scarce and labour is abundant.

One more point to note is that a definition exists only for small and tiny units but not for large and medium units. Medium and large-sized enterprises are not defined. Anything that does not fall under the definition of small can be large or medium. Taking capital invested as the basis, the small business unit in India can be one of the following categories :

(1) A small-scale industrial undertaking is defined as one in which the investment in fixed assets of plant and machinery does not exceed rupees one crore. However, in case of small industries in the field of export promotion and modemalization, investment limits in plant and machinery is fixed as rupees five crores.

Question 3.
How would you differentiate between an ancillary unit and a tiny unit?
Answer:
Ancillary Unit:

1. An ancillary unit is a unit which supplies not less than 50% of its production to the parent unit.
2. Investment limit in such a unit is one crore.
3. Parent unit assists the ancillary unit by providing technical and financial help.

Tiny Unit:

1. A tiny unit is a business enterprise whose investment in plant and machinery is not more than Rs.25 lakh.
2. The investment limit is Rs.25 lakh in this type of unit.
3. No such assistance is there.

Question 4.
State the features of cottage industries.
Answer:
Cottage industries are also known as rural industries or traditional industries. They are not defined by capital investment criteria as in the case of other small scale industries. However, cottage industries are characterised by certain features as follows :

• These are organised by individuals, with private resources.
• It normally use family labour and locally available talent.
• The equipment used is simple.
• Capital investment is small.
• It produce simple products, normally in their own premises.
• It produce the goods using indigenous technology.

Long Answer Questions

Question 1.
How do small scale industries contribute to the socio economic development of India?
Answer:
Small scale industries in India enjoy a distinct position in view of their contribution to the soc io-economic development ‘of the country. The following points highlight their contribution.
(i) Small industries in India account for 35 percent of the industrial value added and 45 percent of the total exports (direct and indirect exports) from India.

(ii) Small industries are the second largest employers of human resources, after agriculture. They generate more number of employment opportunities per unit of capital invested compared to large industries. They are, therefore, considered to be more labour intensive and less capital intensive. This is a boon for a labour surplus country like India.

(iii) Small industries in our country supply an enormous variety of products which include mass consumption goods, readymade garments. hosiery\goods, stationery items, soaps and detergents, domestic, utensils, leather, plastic and rubber goods processed foods and vegetables, wood and steel furniture, paints, varnishes, safety matches, etc.

Among the sophisticated items manufactured are electric and electronic goods like televisions, calculators, electro-medical equipment, electronic teaching aids like overhead projectors, air conditioning equipment, drugs and pharmaceuticals, agricultural tools and equipment and several other engineering products. A special mention should be made of hand looms, handicrafts and other products from traditional village industries in view of their export value.

(iv) The contribution of small industries to the balanced regional development of our country is noteworthy. Small industries with produce simple products using simple technologies and depend on locally available resources both material and labour can be set up anywhere in the country.

Since they can be widely spread without any locational constraints, the benefits of industrialisation can be reaped by every region. They thus, contribute significantly to the balanced development of the country.

(v) Small industries provide ample opportunity for enterpreneurship, The latent skills and talents of people can be channelled into business ideas which can be converted into reality with little capital investment and almost nil formalities to start a small business.

(vi) Small industries also enjoy the advantage of low cost of production. Locally available resources are less expensive. Establishment and running costs of industries are on the lower side because of law overhead expenses. Infect; the low cost of production which small industries enjoy is their competitive strength.

(vi) Due to the small size of the organisations, quick and timely decisions can be taken without consulting many people as it happens in large sized organizations. New business opportunities can be captured at the right time.

(viii) Small industries arebest suited for customised production, i.e. designing the product as per the tastes/preferences/needs of individual customers, say for example tailor-made shirt or trouser. The recent trend in the market is to go in for customised production of even non-traditional products such as computers and other products. They can produce according to the needs of the customers as they use simple and flexible production techniques.

(ix) Last but not the least, small industries have inherent strength of adaptability and a personal touch and therefore maintain good personal relations with both customise and employees. The govt. doesYiot have to interfere in the functioning of a small scale unit.

Due to the small size of the organization quick and timely decision can be taken without consulting many people as in large sized organisations. New business opportunities can be captured at the right time, thus providing healthy competition to big business which is good for the economy.

Question 2.
Describe the role of small businesses in rural India.
Answer:
Small-scale enterprises provide numerous benefits in rural area. The role of small business in rural India is explained in the following points:
(i) Non – farm Employment:
Traditionally, rural households in India were exclusively engaged in agriculture. But now rural households have varied and multiple sources of income and participate in a wide range of non – agricultural activities such as wage employment and self employment in commerce, manufacturing and services, along with the traditional rural activities of forming and agricultural labour. This can be largely attributed to the setting up of agro-based rural small industries.

(ii) Employment for Artisans:
Cottage and rural industries play an important role in providing employment opportunities in the rural areas, especially for the traditional artisans and the weaker sections of society.

(iii) Prevention of Migration:
Development ofrural and village industries can also prevent migration of rural population to urban areas in search of employment.

(iv) Poverty Alleviation:
Village and small industries are significant as producers of consumer goods and absorbers of surplus labour, thereby addressing the problems of poverty and unemployment. Promotion of small scale industries and rural industrialization has been considered by the Government of India as a powerful instrument for realizing the twin objective; of accelerated industrial growth and creating additional productive employment potential in rural and backward areas ’.

(v) Socio-economic Aspects:
These industries contribute to other socio-economic aspects, such as reduction inequalities, dispersed development of other sectors of the economy.

Question 3.
Discuss the problems faced by small-scale industries.
Answer:
Problems of Small Scale Business – Small scale industries are at a distinct disadvantage as compared to large scale industries. The scale of operations, availability of finance, ability to use modern technology, procurement of raw materials are some of these areas.

This gives rise to several problems. Most of these problems can be attributed to the small size of their business, which prevents them from taking advantage, which acquire to large business organisations. However, the problems faced are not similar to all the categories of small businesses.

For instance, in the case of small ancillary units, the major problems include delayed payments, the uncertainty of getting orders from the parent units and frequent changes in production processes. The problems of traditional small-scale units include remote location with less developed infrastructural facilities, lack of managerial talent, poor quality, traditional technology and inadequate availability of finance.

The problems of exporting small-scale units include lack of adequate data on foreign markets, lack of market intelligence, exchange rate fluctuations, quality standards, and pre-shipment finance.

In general, the small businesses are faced with the following problems:

(i) Finance – One of the severe problems faced by SSIs is the non-availability of adequate finance to carry out its operations. Generally, a small business begins with a small capital base. Many of the units in the small sector lack the creditworthiness required to raise as capital from the capital markets.

As a result, they heavily depend on local financial resources and are frequently the victims of exploitation by money lenders. These units frequently suffer from a lack of adequate working capital, either due to delayed payment of dues to them or locking up of their capital in unsold stocks. Banks also do not lend money without adequate collateral security or guarantees and margin money, which many of them are not in a position to provide.

(ii) Raw Materials – Another major problem of small businesses is the procurement of raw materials, If the required materials are not available, they have to compromise on the quality or have to pay a high price to get good quality materials. Their bargaining power is relatively low due to the small number of purchases made by them.

Also, they cannot afford to take the risk of buying in bulk as they have no facilities to store the materials. Because of general scarcity of metals, chemicals and extractive raw materials in the economy, the small scale sector suffers the most. This also means a waste of production capacity for the economy and loss of further units.

(iii) Managerial Skills – Small business is generally promoted and operated by a single person, who may not possess all the managerial skills required to run the business. Many of the small business entrepreneurs possess sound technical knowledge but are less successful in marketing the output.

Moreover, they may not find enough time to take care of all functional activities. At the same time they are not in a position to afford professional managers.

(iv) Labours – Small business firms cannot afford to pay higher salaries to the employees, which affects employee willingness to work hard and produce more. Thus, productivity per employee is relatively low. Because of lower remuneration offered, attracting talented people is a major problem in small business organisations.

Unskilled workers join for low’ remuneration but training them is a time consuming process. Also, unlike large organisations, division of labour cannot be practised, which results in lack of specialisation and concentration.

(v) Marketing – Marketing is one of the most important activ ities as it generates revenue. Effective marketing of good’ requires a thorough understanding of the customer’s needs and requirements. In most cases, marketing is a weaker area of small organisations.

These organisations have, therefore, to depend excessively on middle men, who at times exploit them by paying low price and delayed payments. Further, direct marketing may not be feasible for small business firms as they lack the necessary infrastructure.

(vi) Quality – Many small business organizations do not adhere to desired standards of quality. Instead they concentrate on cutting the cost and keeping the prices low. They do not have adequate resources to invest in quality research and maintain the standards of the industry, non do they have the expertise to upgrade technology. In Tact maintaining quality is their weakest point, when competing in global markets.

(vii) Capacity utilisation – Due to lack of marketing skills or lack of demand, many sn sail business Finns have to operate below full capacity due to which their operating costs tend to increase. Gradually this leads to sickness and closure of the business.

(viii) Technology – Use of outdated technology is often stated as serious lacunae in the case of small industries, resulting in low productivity and uneconomical production.

(ix) Sickness – Prevalence of sickness in small industries has become a point of worry to both the policy makers and the entrepreneurs. The causes of sickness are both internal and external. Internal problems include lack of skilled and trained labour and managerial and marketing skills. Some of the external problems include delayed, payment, shortage of working capital, inadequate loans and lack of demand for their products.

(x) Global Competition – Apart from the problems stated above small businesses are not without fears, especially in the present context of liberalisation, privatization and globalisation (LPG) policies being followed by several countries across the world. Remember, India too has taken the LPG path since 1991. The areas where small businesses feel threatened with the on slaight of global competition.

(a) Competition is not only from medium and large industries but also from multinational companies which are giants in terms of their size and business volumes. Opening up of trade results in cutthroat competition for small-scale units.

(b) It is difficult to withstand the quality standards, technological skills, financial creditworthiness, managerial and marketing capabilities of large industries and multinationals.

(c) There is limited access to markets of developed countries due to the stringent requirements of quality certification like 1509000.

Question 4.
What measures has the government taken to solve the problem of finance and marketing in the small scale sector?
Answer:
The contribution of small-scale industries is remarkable. Thus, Government has provided the following institutional support to solve the problem of finance and marketing in the small scale sector:
1. National Bank for Agriculture and Rural Development (NABARD):
NABARD was setup in 1982 to promote integrated rural development. Since then, it has been adopting a multi-pronged, multi-purpose strategy for the promotion of rural business enterprises in the country.

Apart from agriculture, it supports small industries, cottage and village industries, and rural artisans using credit and non-credit approaches. It offers counseling and consultancy services and organises training and development programmes for rural entrepreneurs.

2. The Rural Small Business Development Centre (RSBDC):
It is the first of its kind set up by the world association for small and medium enterprises and is sponsored by NABARD. It works for the benefit of socially and economically disadvantaged individuals and groups. It aims at providing 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 trainers training programmes, awareness and counselling camps in various villages of Noida, Greater Noida and Ghaziabad.

Through these programmes it covers a large number of rural unemployed youth and women in several trades, which includes food processing, soft toys making, ready-made garments, candle making, incense stick making, two-wheeler repairing and servicing, vermicomposting, and non-conventional building materials.

3. National Small Industries Corporation (NSIC):
This was set up ini955 with a view to promote, aid, and foster the growth of small business Units in the country. This focuses on the commercial aspects of these functions.

• Supply indigenous and imported machines on easy hire-purchase terms.
• Procure, supply and distribute indigenous and imported raw materials.
• Export the products of small business units and develop export worthiness.
• Mentoring and advisory services.
• Serve as technology business incubators.
• Creating awareness on technological up-gradation.
• Developing software technology parks and technology transfer centres.

4. Small Industries Development Bank of India (SIDBI):

• Set up as an apex bank to provide direct/indirect financial assistance under different schemes, to meet credit needs of small business organisations.
• To coordinate the functions of other institutions in similar activities. Thus so far, we have learnt about the various institutions operating at the central level and state level in support of the small industries.

5. The National Commission for Enterprises in the Unorganised Sector (NCEUS):
The NCEUS was constituted in September 2004, with the following objectives:

• To recommend measures considered necessary for improving the productivity of small enterprises in the informal sector.
• To generate more employment opportunities on a sustainable basis, particularly in the rural areas.
• To enhance the competitiveness of the sector in the emerging global environment.
• To develop linkages of the sector with other institutions in the areas of credit, raw materials, infrastructure, technology up-gradation, marketing and formulation of suitable arrangements for skill development.

The commission has identified the following issues for detailed consideration:

• Growth poles for the informal sector in the form of clusters/hubs, in order to get external economic aid.
• Potential for public-private partnerships in imparting the skills required by the informal sector.
• Provision of micro-finance and related services to the informal sector.
• Providing social security for the workers in the informal sector.

6. Rural and Women Entrepreneurship Development (RWED):
The Rural and Women Entrepreneurship Development programme aims at promoting a conducive business environment and at building institutional and human capacities that will encourage and support the entrepreneurial initiatives of rural people and women.

RWE provides the following services:

• Creating a business environment that encourages initiatives of rural and women entrepreneurs.
• Enhancing the human and institutional capacities required to foster entrepreneurial dynamism and enhance productivity.
• Providing training manuals for women entrepreneurs and training them.
• Rendering any other advisory services.

7. World Association for Small and Medium Enterprises (WASME):
It is the only International Non- Governmental Organisation of micro, small and medium enterprises based in India, which set up an International Committee for Rural Industrialisation. Its aim is to develop an action plan model for the sustained growth of rural enterprises. Apart from these, there are several schemes to promote the non-farm sector, mostly initiated by the Government of India.

For instance, there are schemes for entrepreneurship through subsidised loans like Integrated Rural Development Programme (IRDP), Prime Minister Rojgar Yojana (PMRY), schemes to provide skills like Training of Rural Youth for Self Employment (TRYSEM), and schemes to strengthen the gender component like Development of Women and Children in Rural Areas (DWCRA).

There are schemes to provide wage employment like Jawahar Rojgar Yojana (JRY), food for work etc., on rural works programmes to achieve the twin objectives of creation of rural infrastructure and generation of additional income for the rural poor, particular during the lean agricultural season. Last, but not least, there are schemes for specific groups of industries such as khadi, handlooms and handicrafts.

8. Scheme of Fund for Re-generation of Traditional Industries (SFURTI):
To make the traditional industries more productive and competitive and to facilitate their sustainable development, the Central Government set up this fund with Rs. 100 crores allocation to begin within the year 2005. This has to be implemented by the Ministry of Agro and Rural Industries in collaboration with State Governments.

The main objectives of the scheme are as follows:

• To develop clusters of traditional industries in various parts of the country.
• To build innovative and traditional skills, improve technologies and encourage public-private partnerships., develop market intelligence etc., to make them competitive. pro-Stable and sustainable.
• To create sustained employment opportunities in traditional industries.

9. The District Industries Centers (DICs):
The District Industries Centers Programme was launched on 1, May 1978, with a view to providing an integrated administrative framework at the district level, which would look at the problems of industrialization in the district, in a composite manner.

In other words District Industries Centers is the institution at the district level which provides all the services and support facilities to the entrepreneurs for setting up small and village industries. Identification of suitable schemes; preparation of feasibility reports, arranging for credit, machinery and equipment, provision of raw materials and other extension services are the main activities undertaken by these centers.

Broadly DICs are trying to bring change in the attitude of the rural entrepreneurs and all other connected with economic development in the rural areas.

Even within the narrow spectrum, an attempt is being made to look at some of the neglected factors such as the rural artisan, the skilled craftsman and the handloom operator and to tune up these activities with the general process of rural development being taken up through other national programmes. The DIC is thus emerging as the focal point for economic and industrial growth at the district level.

Question 5.
What are the incentives provided by the Government for industries in backward and hilly areas?
Answer:
Since independence, industrial development in India has been geographically uneven and non-equal. Some parts of the country have become highly developed while others have remained backward. Therefore, the government provide various incentives to the industries set up in rural, backward and hilly areas which are as follows :

Incentives – Special emphasis on the industrial development of backward, tribal and hilly areas has been the concern of the Government of India expressed in all the Five Year Plans and Industrial Policy statements. Some parts of the country have become highly developed while others have remainder backward.

Realising that backward areas development is a long-term process, several committees were appointed to identify the criteria for identifying backward areas and also to suggest schemes to take up the Herculean task of balanced regional development.

The implementation of the integrated rural development programme is one such attempt made by the government to develop backward areas. The rural industries project programme initiated by the Government of India was meant to develop small business units in selected rural areas. Though the backward area development programmes varied from state to state, they cumulatively represented a significant package of incentives to attract industries in backward areas.

Some of the common incentives offered are discussed as below :

Land – Every state offers developed plots for setting up of industries, file terms and conditions may vary. Some states don’t charge rent in the initial years, while some allow payment in installments. Providing financial assistance on concessional rates for the purchase of and for units located in specified backward areas.

Power – Power is supplied at a concessional rate of 50 percent, while some states exempt such units from payment in the initial years. Creating electricity facilities in backward areas.

Water-Water is supplied on a no-profit, no-loss basis or with 50 percent concession or exemption from water charges for a period of 5 years.

Sales Tax – In all union territories, industries are exempted from sales tax, while some states extend the exemption for 5 years period.

Octroi – Most states have abolished octroi to promote rural and hilly area industries.

Raw materials – Units located in backward areas get preferential treatment in the matter of allotment of scarce raw materials like cement, iron and steel etc.

Finance – Subsidy of 10-15 percent 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.

Tax holiday – Exemption from paying taxes for 5 or 10 years is given to industries established in backward, hilly and tribal areas. Special tax concessions provided to industries in backward areas.

To sum up, it may be stated that the small business sector in India is getting the support of government through various institutions in different forms for different purposes.

Despite special attention being given to backward areas, it is observed that imbalances in development are still there. There is a need to develop infrastructural facilities in these areas,as no amount of subsidies or concessions can overcome the natural handicaps caused by a lack of such facilities.

The Future – The present era is the regime of the World Trade Organisation (WTO), in which the rules of trade are subject to frequent changes as per global expectations. As a founder member of WTO, India too has committed itself to the policy framework of WTO.

As a result, small business is also moving away from the pre-liberalization era of protection. With the Indian economy getting integrated with the global economy, it is inevitable for small businesses to gear up their capabilities to explore, penetrate and develop new markets.

They have to steadily reorient themselves to face the challenges posed by increased competition, domestically and internationally too. With their dynamism, flexibility and innovative entrepreneurial spirit, small businesses have to adapt themselves to thei fast-changing needs of the market-driven economy. The government should reorient its assistance to the small business sector by acting as a facilitator and promoter and not as a regulator.

New strategies have to be evolved to foster a partnership between large and small industries, adopt cluster approach, develop creative marketing, improve technological skills by upgradation, building export competitiveness by identifying the core competencies of the small businesses.

In fact small business sector should view globalisation as an opportunity for its active participation as suppliers of specialized components and parts. If small businesses are to maintain their market share and healthy growth, they have to create a level-playing field for themselves.

The long-term competitive position for the small businesses will depend on how well they learn to manage, adopt and improve their competitive strength. In short the mantra of success for small businesses in this modern era has to be ‘think global, act local.’