Unit 8: Small Business and Enterprises

ENTERPRINEURSIP DEVELOPMENT

CONSEPT

Entrepreneurs is the process of setting up one’s own business as distinct from pursuing any other economic activity, be it employment or practicing some profession. The person who set-up his business is called an entrepreneur.
The output of the process, they is, the business unit is called an enterprise. It is interesting to note that entrepreneurship besides providing self-employment to the entrepreneur is responsible to a great extent for creation and expansion of opportunities for the other two economic activities.
In the process, entrepreneurship becomes crucial for overall economic development of a nation when you make this choice, you become a job-provider rather than a job-seeker, besides enjoying a host of other financial and psychological rewards.

CHARACTERUSTICS

Every country, whether developed or developing, needs entrepreneurs. Whereas, a developing country needs entrepreneurs to the developed one needs entrepreneurship to sustain it.

SYSTEMATIC ACTIVETY :- entrepreneurship is not a mysterious gift or charm and something that happens by chancel it is a systematic, step-by-step and purposeful activity. It has certain temperamental, skill and other knowledge and competency requirements that can be acquired, learnt and developed, both by formal educational and vocational trainings as well as by observation and work experience.
LAWFUL AND PRRPOSEFUL ACTIVITY:- The object of entrepreneurship is lawful business. It is important to take note of this as one may try to legitimize unlawful actions as entrepreneurship on the grounds that just as entrepreneurship entails risk, so does illicit businesses. Purpose of entrepreneurship is creation of value for personal profit and social gain.
RELATED TO INNOVATION :- entrepreneurship is creative in the sense that it involves creation of value. By combining the various factors of production, entrepreneurs produce goods and services that meet the needs and wants of the society. Every entrepreneurial act results in income and wealth generation.
ORGANISATION OF PRODUCTION :- production, implying creation of form, place, time personal utility, requires the combined utilization of diverse factors of production, land, labour, capital and technology, entrepreneur, in response to a perceived business opportunity mobilizes these resources into a productive enterprise or firm.
RISK-TAKING :- it is generally believed that entrepreneurs take high risks. Yes, individuals opting for a career in entrepreneurship take a bigger risk that involved in a career in employment or practice of a profession as there is no “assured” payoff. In practice, for example, when a person quits a job to start on his, he tries to calculate whether he or she would be able to earn the same level of income or not. To an observe, the risk of quitting a well-entrenched and promising career seems a “high” risk, but what the person has taken is a calculated risk. They are so sue of their capabilities that they are so sure of their capabilities that they 100% success.

Need for Entrepreneurship

Every country, whether developed or developing, needs entrepreneurs. A developing country needs entrepreneurs to initiate the process of development, while the developed one needs entrepreneurship to sustain it. In the present Indian context, entrepreneurship can really take Intia to the heights of becoming a super economic power.

Contribution to Gross Domestic Product (GDP):- Increase in GDP is considered as the most common indicator for economic development. As income is generated in the process of production, entrepreneurs generate income through organization of production, be it agriculture, manufacturing or services.
Capital Formation:- Entrepreneurial decision is an investment decision that enhances the productive capacity of the economy, which results in capital formation.

By investing their own savings and mobilizing savings of their friends and relatives, entrepreneurs contribute to the process of capital formation.

Such informal funding supplements the funds made available by the formal means of raising resources from banks, financial institutions and capital Markets.

III. Generation of Employment:- Entrepreneurship is a source of employment to people with different abilities, skills and qualifications. Entrepreneurship provides livelihood to those who neither have capital to earn interest nor have the land to earn rent. As a result, entrepreneurs improve the standard of living of many people, directly and indirectly.

IV. Generation of business opportunities for others:- Every new business creates opportunities for the suppliers of inputs and marketers of the output. For example, a pen manufacturer would create opportunities for refill manufacturers as well as wholesalers and retailers of stationery products. These immediate linkages induce further linkages.

V. Improvement in Economic Efficiency:- Efficiency means to have greater output from the same input. Entrepreneurs improve economic efficiency by:

Improving processes, reducing wastes, increasing yield; and
Bringing technical progress by altering labour-capital ratios.

VI. Increasing Spectrum and Scope of Economic Activities:- Diversification of economic activities across the geographic, sectoral and technological scope leads to development of an economy. Entrepreneurs Mobilise local and even overseas resources to augment the productive capacity of a country.

VII. Impact on Local Communities:- As there are no entry barriers in terms of educational qualifications, entrepreneurship is an attractive career option for marginalized groups such as women, SC, ST and OBC to pursue their economic dreams.

PROCESS OF ENTERPRENEURSHIP DEVELOPMENT

Entrepreneurship does not emerge spontaneously. Rather, it is the outcome of a dynamic process of interaction between the environment and the person. The choice of entrepreneurship as a career lies with the individual as he/she to see his/her desire for entrepreneurship and analyses its feasibility. For this, it becomes important to study role of environment factors and role of individual factors on the Entrepreneurship Development.

Generally, capitalist economy with its emphasis on individual achievement is more suitable for entrepreneurship. Lower tax and interest rates and moderate inflation encourage entrepreneurial activity.
Similarly, moderately low exchange rates stimulate import substituting and export promoting entrepreneurship.
Well developed financial system, good infrastructure, and helpful political conditions have a favorable impact on entrepreneurship.
Specially designed and dedicated institutions which conduct entrepreneurship awareness and entrepreneurship development programs, like National Institute for Entrepreneurship and Small Business Development and Entrepreneurship Development Institute of India further promote entrepreneurship.
Moreover, social environment also influences entrepreneurship. Societies which respect individual freedom to choose among occupations, that encourage the spirit of exploration and experimentation and celebrate individual accomplishment are likely to have more able and willing people to take entrepreneurship as a career.

START-UP INDIA SCHEME

The Startup India Scheme is a flagship initiative of the Government of India with an objective to carve a strong ecosystem for nurturing innovation and startups in the country. This drive will lead towards sustainable economic growth and generate large-scale employment opportunities. The government of India aims to empower startups to grow through innovation and design. The scheme specifically aims to :

Trigger an entrepreneurial culture and inculcate entrepreneurial values in society at large and influence the mindset of people towards entrepreneurship
Create awareness about the charms of being an entrepreneur and the process of entrepreneurship especially among the youth,
Encourage more dynamic startups by motivating educated youth, scientists and technologists to consider entrepreneurship as a lucrative, preferred and viable career, and
Support the early phase of entrepreneurship development, including the pre-startup, nascent, as well as, early post startup phase and growth enterprises.
Broad base the entrepreneurial supply by meeting specific needs of under represented target groups, like women, socially and economically backward communities, scheduled castes and scheduled tribes: under represented regions to achieve inclusiveness and sustainable development to address the needs of the population at the bottom of the pyramid.

What does a Start-up Mean?

As per the notification dated 16^th January, 2016, issued by the Ministry of Commerce and Industry, a start-up means:

An entity incorporated or registered in India.
Not older than 10 years.
Annual turnover does not exceed Rs.100 crore in any preceding year.
Working towards innovation, development or commercialization of products/ service / processes driven by technology or Intellectual Property Rights (IPRs) and patent.

Start-up India Initiative: Action Points

Simplification and Hand-holding:- In order to make compliance for start-ups, friendly and flexible, simplification are announced.
Start-up India Hub:- The objective is to create a single point of contact for the entire start-up ecosystem and enable knowledge exchange and access to funding.
Legal support and Fast tracking Patent Examination:- the scheme for start-ups Intellectual Property protections (SIPP) is envisaged to facilitate protection of patents, trademarks and designs of innovative and interested start-ups.
Easy Exit:- In the event of a business failure and wind up of operations, procedures are being adopted to reallocate capital and resources towards more productive avenues.
Harnessing Private Sector for incubator setup:- to ensure professional management of government sponsored / funded incubators, the government envisages setting up of incubators across the country in Public Private Partnership (PPP) mode.
Tax exemption:- The profits of start-up initiatives are exempted for income tax for a period of three years.
Funding Schemes for start-ups:- Fund of Rs.10,000 crore has been set-up by the government to provide funds to the start-ups as venture capital.

WAYS TO FUNDS STARTUP

Boot strapping:- Commonly known as self financing, it is considered as the first funding option because by stretching out your personal savings and resources, you are tied to your business. Also, at a later stage, investors consider it as your merit. However, it is a good option of funding only if the initial requirement is funding and handy.
Crowdfunding:- It is the pooling of resources by a group of people for a common goal. Crowdfunding is not new to India. There are many instances of organizations reaching out to common people for funding.
Angel investment:- Angel investors are individuals with surplus cash who have keen interest to invest in upcoming startups. They also offer mentoring or advice alongside capital.
Venture capital :- there are professionally managed funds which are invest in companies that have huge potential. Venture capitalists provide expertise. Venture capitalists provide expertise, mentorship and act as a litmus test of where a business organization is going: Evaluating business from sustainability and scalability point of view.
Business incubators and accelerators:- Early stage business can consider incubator and accelerator programs as a funding option. These programs assist hundreds of startup businesses every year. These two are generally used interchangeably.
Microfinance and NFBCs:- Micro finance is basically access to financial services to those who either do not have access to conventional banking services or have not qualified for a bank loan. Similarly, NBFs (non Banking Financial Corporation) provides banking services without meeting legal requirement/definition of a bank.

INTELLECTUAL PROPERTY RIGHTS AND ENTERPRENEURSHIP

Intellectual property rights refer to all rights associated with indiscernible assets owned by a person or company to protect against any unauthorized use or misuse. Indiscernible assets mean non-physical property, including the right of ownership in intellectual property.

The concept of intellectual property was developed in England in the 17^th and 18^th centuries. The term “intellectual property” began to be use late 20^th century that intellectual property became commonplace in the majority of the world’s legal system.

Intellectual property (IP) refers to the creations of the human mind, like inventions, literary and artistic works. Symbols, names, images and designs used in business. Intellectual property is divided into two broad categories: industrial property, which includes inventions (patents), trademarks, industrial designs and geographical indications, while the other is copyrights, which includes literary and artistic works, such as novels, poems, plays, films, musical works, artistic works, such as drawings, paintings, photographs and sculptures and architectural designs.

The most noticeable difference between intellectual property and other forms of property is that intellectual property is identified by its own physical parameters.

Industrial Property
Copyrights

Scope of Intellectual Property

The scope and definition of intellectual property is constantly evolving with the inclusion of newer forms. Recently, geographical integrated circuits and undisclosed indications, protection of plant varieties, information have been brought under the protection of semi-conductors and umbrella of intellectual property.

Copyright
Trademark
Geographical Indication
Patent
Design
Plant Variety
Semiconductor Integrated Circuit Layout Design

Copyright

Copyright is the right to “not copy”. It is offered when an original idea is expressed by the creator or author. It is a right conferred upon the creators of literary artistic, musical, sound recording and cinematographic film. The copyright is an exclusive right of the creator to prohibit the unauthorized use of the content which includes reproducing and distributing copies of the subject matter. The unique feature of copyright is that, the protection of work arises automatically as soon as the work comes into existence.

2. Trademark

A trademark is any word, name, or symbol (or their combination) that lets us identify the goods made by an individual, company, organization, etc. trademark also let us differentiate the goods of one company form another. In a single brand or logo, trademarks can let you know many things about a company’s reputation, goodwill, products and services. A trademark helps in distinguishing similar products in the market form its competitors. A competitor cannot use the same, or similar trademark to sell their product in the market as the same fall under the concept of deceptive similarity which may be deceptive similarity, which may be defined as phonetic, structural or visual.

3. Geographical Indication

A geographical indication (GI) is primarily an indication which identifies agricultural, natural or manufactured products (handicrafts, industrial goods and food stuffs) originating form a definite geographical territory, where a given quality, reputation or other characteristic are essentially attributable to its geographical origin. GIs are part of our collective and intellectual heritage that need to be protected and promoted.

4. Patent

A patent is a type of IPR which protects the scientific inventions (products and or process) which shows technical advancement over the already known products. A ‘patent’ is an exclusive right granted by the Government which provides the exclusive ‘right to exclude’ all others and prevent them from making, using, offering for sale, selling or importing the invention.

5. Design

A ‘design’ includes shape, pattern, and arrangement of lines or colour combination that is applied to any article. It is a protection given to aesthetic appearance or eye-catching features. The term of protection of a design is valid for 10 years. Which can be renewed for further 5 years after expiration of this term, during which a registered design can only be used after getting a license from its owner and once the validity period is over, the design is in public domain.

6. Plant variety

Plant variety is essentially grouping plans into categories based on their botanical characteristics, it is a type of variety which is bred and developed by farmers. This helps in conserving improving and making available plant genetic resources. For example, hybrid versions of potatoes, such protection promotes investment in R&D, recognizes Indian farmers as cultivators, conservers and breeders as well as facilitates high quality seeds and planting material. This leads to the growth of the seed industry.

7. Semiconductor integrated circuits layout design

A semiconductor is an integral part of every computer chip. Any product that contains transistors and other circuitry elements use and formed on a semiconductor material as an insulating material, or inside the semiconductor material, its design is to perform an electronic circuitry function.

Types of Intellectual Property Rights (IPRs)

IPRs are extremely necessary for fostering creativity and they contribute towards the economic growth of a nation. These rights create incentives for artists, entrepreneurs and inventors to further commit the necessary resources to research, develop and market new technology and creative works.

The changing global economy is crating challenges and opportunities for continued progress in human development. There are business opportunities to market or sell IP worldwide. Under the umbrella of intellectual property, three different facets come into play, which are:

Law:- Intellectual Property Rights are legal rights conferred upon the creator/IP owner to prevent others from using the protected subject matter.
Technology:– the pre-requisite of intellectual property is that the creation has to be original. The creator has to bring something novel into existence.
Business and Economics:- The basis of IPRs help in the development of the industry and in the success of businesses.

SMALL SCALE ENTERPRISE As DEFINED BY MSMED Act 2006

MSME Definition

The classification of Micro, small and medium enterprises is defined under the MSMED act 2006 amendment dated 01/06/2020. The micro, small and medium enterprises is based on the investment in plant, machinery or equipment values (excluding land and building) and annual turnover. This shall come into effect from 01/07/2020.

Micro enterprise: where the investment in plant and machinery or equipment does not exceed ten crore rupees and turnover does not exceed five crore rupees.
Small enterprises: Where the investment in plant and machinery or equipment does not exceed fifty crore rupees and turnover does not exceed fifty crore rupees.
Medium enterprises: Where the investment in plant and machinery or equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees.

Important and Features of MSME’s

The most sector is considered the backbone of the Indian economy that has contributed substantially to the economic development of the nation. It generates employment

Opportunities and works in the development of backward and rural areas. India has approximately 6.3 crore MSMEs.

In addition, due to the following features, they are considered a viable source of income for those looking to venture into the manufacturing industry

Export promotion and potential for Indian products

Funding – finance & subsidies
Government’s promotion and support
Growth in demand in the domestic market
Less capital required
Manpower training
Project profiles
Raw material and machinery procurement

Under the micro, small and medium enterprises development Act, 2006, the government of India established the national boar for micro, small and medium enterprises (NBMSME) to examine the factors affecting promotion and development of MSME. This board also reviews the existing policies and suggests

Recommendations to the government for the growth of the MSME sector

The services provided by the Ministry of MSME are as follows:

Facilities for testing, training for entrepreneurship development
Preparation of project and product profiles
Technical and managerial consultancy
Assistance for exports
Pollution and energy audits.

Role of small business in India:

The following points highlight the role of small scale business in the socio-economic development of the country:

Contributes to Industrialization and Exports:- Small industries account for 95% of the industrial units in the country and contribute 40% of the total industrial production. Small businesses contribute almost 45% of the total exports from India.
Employment Generation:- Small industries are the second largest employers of human resources, after agriculture. As they are more labour intensive, they generate more number of employment opportunities per unit of capital investment as compared to large industries.
Large variety of products:- Small industries supply an enormous variety of products, which include:

Consumption items- such as readymade garments, hosiery goods, stationery items, soaps and detergents, domestic utensils, etc.
Sophisticated Items- Such as televisions, electro-medical equipment, air conditioning equipment, drugs and pharmaceuticals, agricultural tools, etc.

4. Promotes Balanced Regional Development:- Small industries can be set up anywhere in the country as they need simple technology and locally available resources.

5. Development of Entrepreneurship:- Small industries provide ample opportunity for growth of entrepreneurship.

6. Low Cost of Production:- Small industries also enjoy the benefits of lower cost of production due to low establishment and running cost. It improves the competitive strength of small industries.

7. Quick Decisions:- Due to small size of the organization, quick and timely decisions can be taken, which helps to capture the opportunities at the right time.

8. Suitable for customized production:- Small industries are best suited for customized production as goods can be produced according to needs of the customers due to use of simple and flexible production techniques.

9. Personal Contact:- Small industries have inherent strength of adaptability and a personal touch. Therefore, they are able to maintain good personal relations with both customers and employees.

Role of small business in rural India

Employment Opportunities:- 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.
Prevents migration to urban areas:- The development of rural and village industries prevent migration of rural population to urban areas in search of employment.
Improves Economic Condition:- The small scale industries in rural area help to improve the economic conditions or people by providing ample employment opportunities.
Rural Development:- These industries lead to overall development of rural areas by reducing income inequalities and promotion balanced regional development of industries.

PROBLEMS OF SMALL BUSINESS

The small business is generally faced with the following problems:

Shortage of finance:- Small industries face severe shortage of adequate finance to carry out their business activities. Banks and financial institutions hesitate to grant them financial help due to their low credit worthiness and lack of collateral security.
Shortage or Raw materials:- Small business enterprises suffer from shortage of raw material. They are unable to buy in bulk due to their limited financial position and lack of storage facilities.
Lack of managerial Skills:- small business generally lacks managerial skills as it is operated by a single person, who may not possess necessary capabilities. Moreover, the enterprises are unable to hire professional experts due to shortage of funds.
Incompetent Labour:- Small business firms are unable to attract competent and professional candidates in their firms due to inability to pay reasonable remuneration. A lot of training is needed for unskilled workers, who are recruited at low remuneration.
Marketing problems:- Small business enterprises generally face problems in marketing of their goods and services as there are hardly any funds for advertising or sales promotion.
Low Quality Products:- Small industries are unable to supply standardized goods of high quality due to lack of modern technology and shortage of resources to invest in quality research.
Idle Capacity:- Small business firms have to operate below the full capacity level due to shortage of demand of their products.
Outdated Technology:- Most small businesses use outdated technology because of their inability to use modern and advanced technological methods.
Sickness:- Many of the small industries are becoming sick due to various internal and external problems. Internal problems include lack of skilled labour and poor managerial and marketing skills. External problems include delayed payment, shortage of working capital, lack of demand, etc.
Global Competition:- The LPG (liberalization, privatization and globalization) policy initiated by Government in 1991 increased the following problems for small business enterprises.

Measures to promote small business units

In view of the contribution made by small business, Indian Government has been undertaking various measures for establishing, promoting and developing the small business sector, especially the rural, cottage and village industries in the backward areas. The various measures taken may be studied under two categories:

Institution Support
Incentives for Enterprises in Rural, Backward and Hilly areas

Institutional Support

The government has set up following institution for the benefit of the small scale industries:

National Small-Scale Industries (NSIC)

NSIC works under the Micro, Small, and Medium Enterprises. It was launched in 1955 for the growth of small-scale industries. It supports small and medium businesses by improving profitability and creating employment. Also, they enable smooth credit flow by partnerships with banks.

Functions of NSIC

The main function of NSIC are as follows:

To supply domestic and imported machines on easy hire-purchase terms.
To procure, supply and distribute indigenous and imported raw materials.
To export the products of small business units and develop export-worthiness
To provide mentoring and advisory services.
To serve as technology business incubators.
To create awareness on technological up gradation.
To develop software technology parks and technology transfer centers.

NSIC has implemented a new scheme of ‘performance and credit rating’ of small business to achieve two objective:

Sensitizing the small industries about the need for credit rating.
Encouraging small business units to maintain good financial track record.

Marketing Assistance Scheme

Marketing, a started tool for business development, is critical for the growth and survival of micro, small and medium enterprises.

Objective of marketing Assistance Scheme

To enhance marketing capabilities and competitiveness of the MSMEs.
To showcase the competencies of MSMEs.
To update MSMEs about the prevalent market scenario and its impact on their activities.
To facilitate the formation of consortia of MSMEs for marketing of their products and services.
To provide platform to MSMEs for interaction with large institutional buyers.
To disseminate/propagate various programmes of the Government.
To enrich the marketing skill of the micro, small and medium entrepreneurs.

Marketing Support to MSMEs

Under the Scheme, it is proposed to enhance competitiveness and marketability of products of MSMEs through following activities:

Organizing International Technology Exhibitions in Foreign Countries by NSIC and Participation in International Exhibitions/Trade Fairs:- The aim is to provide broader exposure to Indian micro, small and medium enterprises and to facilities them in exploring new business opportunities in emerging and developing markets.
Organizing Domestic Exhibitions and Participation in Exhibitions/Trade Fairs in India:- The aim is to focus on products and services offered by MSMEs, including technologies suitable for employment generation, products from specific regions or clusters. Participation in such events is expected to help the MSMEs in enhancing their marketing avenues by way of capturing new markets and expanding existing markets.
Support for Co-sponsoring of Exhibitions Organized by other Organizations/ Industry Associations /Agencies:- This support would be in the form of co-sponsoring of the events by NSIC. For this, the applicant organization must fulfill the criteria/conditions.
Buyer-seller Meets: bulk and departmental buyers such as Railways, Defence:- Communication departments and large companies are invited to participate in buyer-seller meets to bring them closer to MSMEs for enhancing their marketing competitive eness.
Intensive Compaigns and Marketing Promotion Events:- The aim is to disseminate information about the various schemes for the benefit of the micro, small and medium enterprises. They are also facilitated to enrich their knowledge regarding latest development, quality standards, etc. and to improve marketing potential of their products and services.
Other Support Activities:-

Development of display Centers, show windows and hoarding etc. for promoting products and services of MSMEs.

Printing of Literature, Brochures and product-specific catalogues and CDs etc. and preparation of short films for disseminating information.
Development of website/portal for facilitating the marketing of MSME products and services.
Development and dissemination of Advertising and Publicity material about various programmes/Schemes of MSME sectors and events.
Preparation and Upgradation of MSME manufactures/suppliers/exporters Directory.
Documentation of the success stories of MSMEs.
Hosting international delegations and networking events.

2. District Industries Centers (DICs)

DIC Programme was launched in 1^st May, 1978 at the district level to provide services and support facilities to the entrepreneurs for setting up small and village industries. It provide different kinds of assistance to the entrepreneurs.

DIC provides guidance about the various assistance schemes of the government, preparation of feasibility reports, arranging for credit, machinery and equipment, provision for raw materials and other extension services for the entrepreneurs of small and village industries.
Broadly, DICs are trying to bring change in the attitude of the rural entrepreneurs and all other who are connected with economic development in the rural areas.
Efforts are being made to look at some of the neglected factors like the rural artisan, the skilled craftsman and the handloom operator and to tune up these activities with the general process of rural development.

Incentives for enterprises in rural, Backward and Hilly Areas

Indian Government has always given importance to the industrial development of backward, tribal and hilly areas in all its Five Year Plans and industrial policy statements. Government has also initiated several rural development programs (like IRDP) to develop backward areas. Every progam varied from state to state, but each program offered various incentives to attract industries in backward areas. Some of the important incentive are as follows:

Land:- In order to encourage entrepreneurs to set up industries, every state offer developed plots of land at concessional rates and allows the payment in easy installments.
Power:- Power is supplied to small business enterprise at concessional rates (like at 50%, discount). In some cases, firms are even exempted from payment in their initial years of set up.
Water:- Wager is supplied on a no-profit, no-loss basis or at discount of 50%. In some cases, water charges are even exempted for a period of 5 years.
Tax Holiday:- Industries established in backward, hilly and tribal areas are given tax exemption for a period of 5 to 10 years.
Octori:- Several states have abolished octroi.
Raw Materials:- Industries located in backward areas get preferential treatment in allotment of scarece raw materials like cement, iron and steel, etc.
Finance:- Loans are given at concessional interest rates. Finance subsidy of 10-15% is given for building capital assets.
Industrial Estates:- Some states encourage setting up of industrial estates in backward areas.

Future of the Small Business Sector

As the Indian economy is getting globalized, small business enterprises will have to explore their capabilities in order to survive and grow in future.

Government should provide its assistance to the small business sector by acting as a facilitator and promoter and not as a regulator.
Small business sector should be ready to face competition from domestic and international firms.
Small industries will have to adapt themselves to the fast changing needs of the market by including dynamism, flexibility and innovation in their functioning.
Small industries should take the advantage of globalization by getting involved in export of specialized component and parts.

Very Short Answer Questions

Which year the MSMED Act passed?

Ans:

The classification of Micro, small and medium enterprises is defined under the MSMED act 2006 amendment dated 01/06/2020.

2. What is the micro enterprise.

Ans:

Micro enterprise: where the investment in plant and machinery or equipment does not exceed ten crore rupees and turnover does not exceed five crore rupees.

3. What is a cottage industry?

Ans:

A cottage industry refers to a small-scale, decentralized manufacturing or production process that is typically carried out at home or in small workshops rather than large factories. It involves individuals or families producing goods, often by hand, with limited use of machinery. These industries are usually based on traditional skills or crafts and can include textiles, food production, pottery, and other handcrafted items. Cottage industries often emerge in rural or less-industrialized areas and can be a source of supplementary income for families.

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4. What is meant by Village and Khadi Industry?

Ans:

Village Industry refers to the types of businesses or economic activities that are traditionally carried out in rural areas or villages. These industries are often small-scale and focus on utilizing local resources and labor. Examples include agriculture, handloom weaving, pottery making, and other crafts or manual work that has been passed down through generations in rural communities.

Khadi Industry specifically refers to the production of Khadi, a handspun and handwoven fabric, typically made from cotton, silk, or wool. The Khadi industry is closely tied to India’s independence movement, as it became a symbol of self-reliance and resistance to British colonial rule. The fabric is made by artisans in villages, using traditional methods, and it supports local economies. The Khadi industry is often associated with rural empowerment and sustainable practices.

5. Give any two characteristics of entrepreneurship development.

Ans

Every country, whether developed or developing, needs entrepreneurs. Whereas, a developing country needs entrepreneurs to the developed one needs entrepreneurship to sustain it.

Systematic Activity
Lawful and Purposeful Activity
Innovation
Organisation of Production
Risk-taking

Short Answer Questions

What is MSME?

Ans

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2. State the meaning of entrepreneurship?

Ans:

Entrepreneurship is the ability and willingness to create, organise, and manage a business enterprise, including all of its uncertainties, in order to earn profit. The most visible example of entrepreneurship is the establishment of new businesses. Entrepreneurship involving land, labour, natural resources, and capital can yield a profit. The entrepreneurial vision is defined by exploration and risk-taking, and it is an essential component of a nation’s ability to succeed in an ever-changing and more competitive global marketplace.

3. MSME and Entrepreneurship are connected. Do you agree. Give two reasons.

Ans:

Yes, MSMEs (Micro, Small, and Medium Enterprises) and entrepreneurship are closely connected. Here are two reasons:

MSMEs Are a Product of Entrepreneurial Efforts:

Entrepreneurs often establish MSMEs to bring their ideas to life, create products or services, and generate economic value. These businesses serve as a platform for entrepreneurs to innovate, take risks, and contribute to economic growth.

MSMEs Foster Entrepreneurial Ecosystems:

MSMEs play a key role in developing local economies by creating jobs and fostering innovation. They provide a foundation for other entrepreneurs by creating supply chains, offering mentorship, and cultivating markets that encourage new entrepreneurial ventures.

This symbiotic relationship drives both economic and entrepreneurial development.

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4. State the role of MSME in development of a country?

Ans:

Small Scale Industries play a very important role in the socioeconomic development of the country. These industries account for 95 per cent of industrial units, contribution up to 40 per cent of the gross industrial value added and 45 per cent of the total exports. SSIs are the second largest employers of human resources, after agriculture and produce a variety of products for the economy. These units contribute to the balanced regional development of the country by using locally available material and indigenous technology. These provide ample scope for entrepreneurship; enjoy the advantage of low cost of production; quick decision making, and have quick adaptability and are best suited to customized production.

5. What are the different parameters used to measure the size of MSME?

Ans:

The size of Micro, Small, and Medium Enterprises (MSMEs) in most countries is categorized based on certain parameters. In India, the Ministry of MSME defines these categories primarily based on investment in plant and machinery or equipment and annual turnover, as per the MSME Development (Amendment) Act, 2020.

Parameters Used to Measure the Size of MSMEs:

Investment in Plant and Machinery or Equipment: This refers to the amount invested in fixed assets like machinery, tools, and equipment. It excludes land and building costs.
Annual Turnover: This refers to the total revenue generated by the business in a financial year.

6. State the meaning of Village and Khadi industries?

Ans:

Village and Khadi industries refer to traditional, small-scale industries rooted in rural areas, aimed at promoting self-reliance, employment, and economic development.

Village industries focus on utilizing local resources and skills to produce goods and services such as handicrafts, pottery, bee-keeping, and agro-based products like oil pressing and flour milling.

Khadi industries, on the other hand, specialize in producing hand-spun and hand-woven textiles made from cotton, silk, or wool, following traditional methods. These industries not only preserve cultural heritage but also align with Mahatma Gandhi’s vision of self-reliance. Supported by bodies like the Khadi and Village Industries Commission (KVIC), they contribute significantly to rural development and sustainable livelihoods.

7. State any three major problems faced by MSMEs?

Ans:

Micro, Small, and Medium Enterprises (MSMEs) face several challenges that hinder their growth and sustainability. Three major problems include:

Limited Access to Finance:

MSMEs often struggle to secure adequate and timely credit due to a lack of collateral, high-interest rates, and lengthy loan approval processes. This financial constraint limits their ability to expand, innovate, and compete effectively.

2. Technological Deficiencies:

Many MSMEs lack access to modern technology and digital tools, which affects productivity, efficiency, and competitiveness. Limited awareness and high costs of adopting advanced technologies exacerbate this issue.

3. Market Access and Competition:

MSMEs face difficulties in accessing broader markets due to insufficient marketing strategies, lack of branding, and limited knowledge of export opportunities. Additionally, they struggle to compete with larger enterprises and cheaper imports.

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Long Answer Questions

How do small scale industries contribute to the socio-economic development of India? Discuss

Ans: small-scale industries play a crucial role in the socio-economic development of India. Their contributions are multi-dimensional, influencing both economic growth and social upliftment. Here’s a detailed discussion:

Economic Contributions

Employment Generation—SSIs are labor-intensive and provide employment to a significant portion of the workforce, especially in rural and semi-urban areas. They help in reducing unemployment and underemployment, contributing to poverty alleviation.
Balanced Regional Development—–SSIs promote industrial development in rural and backward areas by utilizing local resources and manpower. This helps reduce regional disparities and prevents excessive urban migration.
Contribution to GDP and Exports—SSIs contribute significantly to India’s GDP and exports. They produce a wide range of products, including handicrafts, textiles, and engineering goods, which are in demand in global markets.
Support to Large Industries—-These industries act as ancillary units, providing raw materials, components, and intermediate goods to large industries. This symbiotic relationship strengthens the industrial ecosystem.
Promotion of Entrepreneurship—-SSIs encourage entrepreneurship by enabling individuals with limited capital and skills to start businesses, fostering innovation and self-reliance.
Utilization of Local Resources——They efficiently utilize local resources like raw materials, skills, and traditional knowledge, contributing to sustainable development.

Social Contributions

Empowerment of Marginalized Sections——SSIs provide opportunities to women, artisans, and marginalized communities, promoting inclusivity and reducing social inequality.
Preservation of Traditional Arts and Crafts—-Many SSIs focus on traditional industries like handlooms, pottery, and handicrafts, preserving India’s rich cultural heritage.
Improvement in Living Standards—-By providing employment and income opportunities, SSIs improve the living standards of individuals and their families, particularly in rural areas.
Promotion of Self-Employment—–They encourage self-employment, reducing dependence on government jobs and large corporations, fostering a culture of independence and innovation.
Community Development——SSIs often involve local communities, contributing to the development of social infrastructure like schools, healthcare, and public utilities in their areas of operation. 2. Describe the role of small business in rural India. Role of small business in rural India

Ans:

Small business units provide multiple source of income, in wide range of non-agricultural activities and provide employment opportunities in rural areas, especially for the traditional artisan and weaker sections of the society.

i. Economic Empowerment

Small businesses play a big part in boosting the economy of rural India. They create jobs and opportunities for folks in rural areas, positively impacting their lives. When people have their businesses, they contribute to the overall economic growth of their region. Small businesses are like the engines that power economic development in rural areas.

ii. Employment Generation

Small businesses help to be the prominent job creators in rural India. For example, when someone sets up a shop, they don’t just sell things; they create jobs for the local folks. When small businesses hire people, they’re helping to fight against unemployment. So, offer services but also decrease unemployment. Worries and improve the whole economic scene in the area!

iii. Local development

Small businesses are crucial in boosting local development in rural India. When these businesses thrive, they bring positive changes to the community. One significant way they contribute is by investing in essential services like schools grow, they often allocate resources to improve local infrastructure, making life better for everyone.

iv. Cultural Preservation

Small businesses help in preserving the rich cultural tapestry of rural India. How? They take the skills passed down through generations, turn them into products that tell a story, and find their way into markets. So, when you buy that handmade pottery or wear traditional fabrics, you’re not just getting a product but embracing a piece of history.

v. Financial Inclusion

Small businesses contribute to financial inclusion by providing banking services and credit facilities to individuals otherwise excluded from the formal financial sector. These businesses make financial services more inclusive. Without them, many folks in rural areas might struggle to save, borrow, or invest. Small businesses bring financial opportunities to the doorstep, ensuring no one gets left out in the economic journey.

vi. Supply Chain Integration

Many small businesses in rural India are involved in agriculture and related industries. Their integration into the supply chain ensures a more sustainable and efficient distribution of goods, benefiting producers and consumers.

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3. Discuss the problems faced by small scale industries.

Ans:

Small-scale industries (SSIs) face several challenges that can hinder their growth and sustainability. Some of the key problems they encounter include:

Limited Access to Finance: Small-scale industries often struggle to secure adequate funding. They may not have the required collateral for loans or may face high-interest rates, which can limit their ability to expand or modernize.
Technology Gap: Many small-scale industries lack access to the latest technology and machinery, which affects their productivity and competitiveness. The inability to upgrade to modern production methods makes it harder to meet industry standards and consumer demands.
Skilled Labor Shortage: There is often a lack of skilled workers, as small businesses may not have the resources to provide training or attract well-trained personnel. This can lead to inefficiencies and poor-quality output.
Regulatory and Compliance Issues: Small-scale industries often find it difficult to navigate complex regulations, including tax laws, labor laws, and environmental norms. Compliance costs can be burdensome for small businesses.
Market Competition: SSIs face tough competition from larger corporations that benefit from economies of scale, brand recognition, and extensive marketing reach. This makes it challenging for small enterprises to maintain profitability.
Inadequate Infrastructure: Poor infrastructure, such as unreliable power supply, inadequate transportation, and limited access to modern communication networks, can significantly affect the efficiency of small-scale industries.
Marketing and Branding Challenges: Small industries typically lack the resources to invest in marketing and branding, making it difficult for them to reach a broad audience or effectively promote their products.
Supply Chain Issues: Small businesses often face difficulties in managing their supply chains efficiently. They may have limited bargaining power with suppliers, resulting in higher costs for raw materials or delays in production.
Limited Access to Global Markets: While larger industries can tap into global markets, small-scale industries often face barriers when attempting to export their products due to lack of infrastructure, knowledge of international regulations, and competition from established international brands.
Economic Instability: Small businesses are more vulnerable to economic fluctuations, such as inflation, changes in interest rates, or shifts in consumer demand. These industries have less financial cushion to weather such shocks.

4. What measures has the government taken to solve the problem of finance and marketing in the small scale sector?

Ans:

Governments around the world have introduced several measures to address the financial and marketing challenges faced by small-scale industries (SSIs). These measures typically include:

1. Access to Finance—-Subsidized Loans and Credit Schemes Many governments offer low-interest loans and subsidies to SSIs to ease their financial burden. For example, in India, the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) provides credit guarantees for loans without collateral. Governments often collaborate with MFIs to provide small loans to businesses that may not qualify for conventional bank loans.

2. Tax Benefits and Incentives—–Tax holidays, deductions, and exemptions on income and sales taxes are often provided to SSIs to reduce their operational costs. In countries like India, small businesses benefit from a simplified Goods and Services Tax (GST) regime with lower tax rates and fewer compliance requirements.

3. Government Schemes and Programs—–Governments often fund skill development programs aimed at improving the skills of the workforce in small industries, enhancing productivity and competitiveness. Programs like the Technology Upgradation Fund Scheme (TUFS) help small industries upgrade their technology and machinery to improve efficiency and product quality.

4. Marketing Support— Many governments support SSIs in reaching global markets by providing subsidies for trade fair participation, marketing research, and export logistics.Governments encourage SSIs to tap into e-commerce platforms for broader reach, providing them with the necessary infrastructure and support for online marketing and sales.

5. Government-Industry Partnerships—-In Public-Private Partnerships (PPPs) Governments collaborate with private sector players to enhance the reach and capabilities of SSIs, offering both financial support and access to advanced marketing strategies.

5. ‘Innovation is integral to MSME’. Discuss giving reasons to your answer.

Ans:

Innovation is integral to Micro, Small, and Medium Enterprises (MSMEs) for several key reasons:

Competitive Edge: Innovation helps MSMEs differentiate themselves from larger competitors. By developing unique products, services, or business models, MSMEs can attract customers who are seeking something different or more tailored to their needs.
Adaptation to Market Changes: The market landscape is constantly evolving, and MSMEs that innovate are better equipped to adapt to changing consumer preferences, technological advances, and industry trends. Innovation allows them to stay relevant and avoid stagnation.
Cost Efficiency: Many MSMEs operate with limited resources, so they need to find innovative ways to maximize efficiency and reduce costs. This could involve adopting new technologies, improving production processes, or finding more cost-effective ways of delivering products or services.
Economic Growth and Job Creation: Innovation by MSMEs leads to the creation of new products and services, which can open up new markets and drive economic growth. It also often results in the creation of new jobs, especially in sectors like technology, manufacturing, and services.
Access to Funding: Investors and financial institutions are more likely to fund MSMEs that demonstrate a commitment to innovation. A unique, innovative product or service can make a business more attractive to potential investors, ensuring sustainable growth.
Customer Loyalty and Retention: Innovative MSMEs can build stronger relationships with their customers. By consistently offering innovative solutions, MSMEs can foster customer loyalty, as consumers are likely to return to businesses that offer cutting-edge, reliable products or services.
Improved Productivity: Through innovation, MSMEs can optimize their operations, leading to better productivity. This can be achieved by automating processes, improving quality control, or introducing better management systems.

6. ‘Creativity and Innovation is the key to MSME’. Justify the statement.

Ans:

The statement “creativity and innovation are the key of MSME” is justified because:

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Adaptation to Market Demands: MSMEs (Micro, Small, and Medium Enterprises) often operate in competitive markets where customer preferences evolve rapidly. Creativity and innovation allow them to introduce unique products, services, or processes that meet these changing demands, helping them to stand out from larger competitors.
Cost Efficiency and Productivity: Innovation enables MSMEs to optimize their processes, reduce costs, and improve efficiency. Creative solutions in production methods or business models can help MSMEs survive and thrive even with limited resources.
Growth and Scalability: By embracing creative thinking and innovative strategies, MSMEs can explore new markets, diversify their offerings, and scale their operations. Innovation helps them evolve with technological advancements and capitalize on emerging trends.
Problem-Solving: Many MSMEs face challenges such as resource constraints, access to finance, and limited market reach. Creativity and innovation allow them to find novel solutions to these problems, making them resilient in a dynamic business environment.
Sustainability and Long-Term Success: Through innovation, MSMEs can develop sustainable practices, adopt green technologies, and improve their overall value proposition. Creative approaches also enhance their ability to navigate disruptions in the market, ensuring long-term success.

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