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NCERT Solutions for Class 11th Business Studies Chapter 9 – Small Business

Short Answer Type Questions

Question 1. What are the different parameters used to measure the size of 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 business, volume of output or value of output of business and power consumed for business activities. Appropriate parameter may be used depending on the need and advantages or limitations of various measures.

Question 2. What is the definition used by Government of India for small scale industries?

Answer The Government of India defines the small scale industries as per their investment In plant and machinery. In India the capital is scarce and labour is abundant this measure asks to keep in view the socio-economic environment.

Question 3. How would you differentiate between an ancillary unit and a tiny unit?

S.No.	Ancillary Unit	Tiny Unit
(i)	All ancillary unit is the unit which supplies not less than 50% of Its produchon to the parent unit	A tiny unit is the business enterprise whose investment in plant and machinery not more than ₹ 25 lakhs.
(ii)	Investment limit in such unit is one core.	Investment limit is ₹ 25 lakhs In this type of unit.
(iii)	Parent unit assists the ancillary unit by providing technical and financiol help.	No such assistance is there.

Question 4. State the features of cottage industries.

Answer Cottage Industries are those where artisnc goods are produced using manual techniques. For e.q; Handloom, Weaving etc. It is characterised by the following features

1. Cottage industries are organised resources by individuals with private resources.
2. Cottage industries normally use family labour and locally available talent
3. The equipment used in cottage industries is simple.
4. Capital investment in cottage industries is small.
5. Cottage industries produce simple products, normally in their own premises.
6. Cottage Industries produce goods using indigenous technology.

Long Answer Type Questions

Questions 1. How do small industries contribute to the socio-economic development of India?

Answer

India is a developing country and in developing countries the scope of small scale industries are very wide. It is contributing to the socio-economic development in the following ways

1. Contribution in GOP Small industries in India account for 95% of the industrial units in the country. They contribute almost 40% of the gross industrial value added in the economy.
2. Contribution in Exports 45% of the total exports from India come from small scale industries. Gems and jewellery, handicrafts, sports goods, etc. are some items of exports from small scale sector.
3. Employment Generation Small industries are the second largest employers of human resources. after agriculture and generate more number of employment opportunities per unit of capital invested compared to large industries.
4. Variety of Production Small industries produce a wide variety of products ranging from 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. to the sophisticated items like electric and electronic goods, drugs and pharmaceuticals, agricultural tools and equipment and several other engineering products. Handlooms, handicrafts and other products from traditional village industries add to this diverse production from SSIs.
5. Regional Balance Small industries contribute significantly to the balanced development of the country as they produce simple products using simple technologies and depend on locally available resources both material and labour and can be set up anywhere in the country.
6. Entrepreneurship Development Small industries provide opportunity for entrepreneurship development in the country. The latent skills and talents of people can be transformed into business ideas with little capital investment and almost nil formalities to start a small business.
7. Low Cost of Production Small industries have the advantage of low cost of production as they use locally available resources which are less expensive: Establishment ana running costs of small industries are lower because of low overhead expenses.
8. Quick Decision Making Due to the small size of the organisations, quick and timely decisions can be taken without consulting many people. New business opportunities can therefore be captured at the right time.
9. Customised Production Small industries can design the product as per the tastes/preferences/needs of individual customers. They can provide customised production of even non-traditional products such as computers and other such products. They can produce according to the needs of the customers as they use simple and flexible production techniques.
10. Personal Touch Small industries have inherent strength of adaptability and a personal touch and therefore maintain good personal relations with both customers and employees. The government does not have to interlere in-the functioning of a small scale unit.

Question 2. Describethe role of small business in rural India.

Answer Small Scale enterprises provide the numerous benefit in rural area.

The role of small business in rural India is explained in the following points.

1. 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 farming and agricultural labour. This can be largely attributed to the setting up of agro-based rural small industries.
2. 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.
3. Prevention of Migration Development of rural and village industries can also prevent migration of rural population to urban areas in search of employment.
4. 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 industrialisation has been considered by the Government of India as a powerful instrument for realising the twin objectives of ‘accelerated Industrial growth and creating additional productive employment potential in rural and backward areas.’
5. Socio-economic Aspects These industries contribute amply to other socio-economic aspects, such as reduction in income inequalities, dispersed development of industries and linkage with other sectors of the economy.

Question 3. Discuss the problems faced by small scale industries.

Answer Small business have been facing a large number of problems compared to large scale industries. The scale of operations, shortage of funds, procurement of raw materials are some of them. The detailed description of problems are as follows

1. Finance The most serious problem faced by SSls is that non availability of adequate finance to carry out their operations. Small scale sector lacks the creditworthmess and collateral required to raise capital from the capital markets or financial institutions and hence they depend on local money lenders who charge high interest rates. These units also suffer from lack of adequate working capital, either due to delayed payment of dues to them or locking up of their capital in unsold stocks.
2. Raw Materials Another major problem of small business 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. They purchase raw materials in small quantities due to lack of storage capacity and hence their bargaining power is low.
3. 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 and 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.
4. Less Productive Labour Small business firms cannot afford to pay high salaries to their employees, which affects employee willingness to work. Thus, productivity per employee, is relatively low and employee turnover is generally high. Small business organisations are unable to attract talented people because of lower remuneration. Division of labour cannot be practised in small scale units, which results in lack of specialisation and concentration.
5. Marketing Effective marketing is a weaker area of small organisations. These organisations depend excessively on middlemen, who at times exploit them by paying low price and delaying payments. Direct marketing is also not feasible for small business firms as they lack the necessary infrastructure.
6. Quality Small business organisations generally concentrate on cutting the cost and keeping the prices low. In doing this, they are unable to maintain the desired standards of quality as they do not have adequate resources to invest in quality research and expertise to upgrade technology.
7. Capacity Utilisation Small business firms have to operate below full capacity due to lack of demand. Due to this their operating costs tend to increase which gradually leads to sickness and closure of the business.
8. (viii) Technology Use of outdated technology is a serious shortcoming of small industries which results in low productivity and uneconomical production.
9. Sickness Small industries become sick due to both internal and external causes. 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.
10. Global Competition Small businesses are threatened with global competition from multinational corporations and cheap imports. It is difficult for them to compete with the quality standards, technological skills and marketing capabilities of the large multinationals.

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 are remarkable. Thus, Government has provided the following institutional support to solve the problem of finance and marketing in the small scale sector

(i) National Bank for Agriculture and Rural Development (NABARO) NABARD was setup in 1982, to promote Integrated rural development. Apart from agriculture, it supports small industries, cottage and village industries, and rural artisans. It provides credit and offers counselling and consultancy services and organises training and development programmes for rural entrepreneurs.

(ii) The Rural Small Business Development Centre (RSBDC) it was 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.

(iii) National Small Industries Corporation (NSIC) this was set up in 1955 with a view to promote, aid and foster the growth of small business units in the country. Functions of NSIC include

(a) Supply of machines on easy hire-purchase terms.
(b) Procure, supply and distribute raw materials.
(c) Export the products of small business units and develop ex port-worth iness.
(d) Mentoring and advisory services.
(e) Serve as technology business incubators.
(f) Creating awareness on technological upgradation.
(g) Developing software technology parks and technologytransfer centres.

Scheme of ‘performance and credit rating’ of small businesses is implemented through NSIC to ensure that they score higher rating for their credit requirements as and when they approach the financial institutions for their working capital and investment requirements.

(iv) Small industries Development Bank of india (SIOBI) SIDBI was set up as an apex bank to provide direcVindirect financial assistance under different schemes, to meet credit needs of small business organisations and to coordinate the functions of other institutions in similar activities.

(v) The National Commission for Enterprises in the Unorganised Sector (NCEUS) The NCEUS was constituted in September, 2004, with the objectives of recommending measures considered necessary for improving the productivity of small enterprises in the informal sector and to enhance the competitiveness of the sector in the emerging global environment by developing linkages of the sector with other institutions in the areas of credit, raw materials, infrastructure, technology upgradation, marketing, etc.

(vi) 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 by providing training and advisory services.

(vii) Scheme of Fund for Regeneration of Traditional Industries (SFURTI) The Central Government set up this fund to make the traditional industries more productive and competitive and to facilitate their sustainable development. The main objectives of SFURTI are to develop clusters of traditional industries in various parts of the country; build innovative and traditional skills, improve technologies and encourage public-private partnerships, develop market intelligence etc.

(viii) The District Industries Centres (DIGs) District Industries Centre 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 including identification of suitable schemes. preparation of feasibility reports. arranging for credit, machinery and equipment, provision of raw materials and other extension services. This was launched on 1st May, 1978.

Question 5. What are the incentives provided by the Government for industries in backward and hilly areas?

Answer Some of the common incenllves provided by the Government tor industries in backward and hilly areas are as follows

1. land Every state offers developed plots for setting up of industries. The terms and conditions may vary. Some states don’t charge rent In the initial years, while some allow payment in instalments.
2. Power Power is supplied at a concessional rate of 50%, while some states exempt such units from payment in the initial years.
3. Water Water is supplied on no-profit. no-loss basis or with 50% concession or exemption from water charges for a period of 5 years.
4. Sales Tax In all union territories, industries are exempted from sales tax, while some states extend exemptlon for 5 years period.
5. Octroi Most states have abolished octroi.
6. 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.
7. Finance Subsidy of 10-15% is given tor building capital assets. Loans are also offered at concessional rates.
8. Industrial Estates Some states encourage setting up of industrial estates in backward areas.
9. Tax Holiday Exemption from paying taxes for 5 or 10 years is given to industries established In backward, hilly and tribal areas.

S.No.	Ancillary Unit	Tiny Unit
(i)	All ancillary unit is the unit which supplies not less than 50% of Its produchon to the parent unit	A tiny unit is the business enterprise whose investment in plant and machinery not more than ₹ 25 lakhs.
(ii)	Investment limit in such unit is one core.	Investment limit is ₹ 25 lakhs In this type of unit.
(iii)	Parent unit assists the ancillary unit by providing technical and financiol help.	No such assistance is there.

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