CHAPTER 8 - SMALL BUSINESS

 A business which operates on a small scale and required less capital, less labor and less
machines is called small business.
 The goods are produced on a small scale.
 This business is operated and managed by the owner of the business.
 In India, the village and small Industries sector consists of traditional Handlooms, Handicrafts,
khaki and Village Industries. Modern small Industries - Small scale industries and Power looms.

According to MSMED Act, 2006, a small scale enterprise defined as one where the investment in Plant
and Machinery is more than 25 lacs but does not exceed Rs. 5 crore.

 Several parameters can be used to measure the size of business. These include the number of
persons employed in business, Capital invested in business, Volume of output of business and
power consumed for business activities.
 The definition used by the Government of India to describe small Industries is based on the
investment in plant and machinery.
It can be divided as follows:-

Type of Industries Investment Limit Rs Features

Manufacturing Micro Enterprises Not more than 25 Lakhs For specific production it is 5
Crore
(71 product)
Manufacturing Small Enterprises More than 25 Lakhs and not 50% of output supplied to the
more than 5 crore parent
Unit
Manufacturing Medium More than 5 crore and not more It export more than 50% of its
Enterprise than 10 crore production.
It can sell 25% in domestic
Market.
Service Micro Enterprise Not more than 10 Lakh Investment Limit in plant and
Machinery is not more than 25
lakh
Service Small Enterprise More than 10 Lakhs and not Owned and managed by woman
more than 2 crore and have capital not less than
51%
Service Medium Enterprise More than 2 crore and not more Those whose Investment in plant
than 5 crore and Machinery does not exceed
Rs. 1 Lakh

Village Industries Investment Fixed capital per head is Location in Rural Areas Produces
specified by Central Government any goods without the use of
power

Cottage Industries Not defined by capital. Normally use family labour. Use
Investment Simple machine, use small
capital
ROLE OF SMALL SCALE INDUSTRIES IN SOCIO ECONOMIC DEVELOPMENT OF INDIA :-
1. Employment :
 Small scale Industries are second largest employers of human resources after
Agriculture.
 It has 95% of the industrial unit in the country.
 These enterprises are labour intensive and labour is available in abundant in rural areas
of India.
2. Variety of product:
 Small scale Industries produce an enormous Variety of goods
 e.g. readymade garments, stationery, soaps, Leather’s goods Plastic and rubber goods.
3. Export :
 The share of product from SSI is 45% of total export from India.
 It earn valuable foreign exchange and solve the problem of balance of payment.
4. Balance regional development:
 S.S.I use local resources, Less capital and simple technology.
5. Complementary to large scale Industries:
 S.S.I. supply various types of components, spare parts, tools etc, which are required by
large scale enterprises.
6. Low cost of production:
 S.S.I. also enjoy the advantage of low cost of production because they used local
resources in their product.
7. Quick and timely decision
 Due to the small size of the organisation quick and timely decisions can be taken
without consulting many people.
8. Development of enterpreneurship:
 S.S.I. provides opportunity of young men and women to start their own business.

ROLE OF SMALL BUSINESS IN RURAL INDIA

1. Provides Employment in Rural Areas :-
 Cottage and rural industries provide employment opportunities in the rural areas as
these are labour oriented enterprises.
 In Indian ruralareas ample labouris available
2. Improve Economic Condition:
 Small business provide multiple source of income to the rural households.
 S.S.I. improve economic conditions and standard of living of people living in those
Areas.
3. Prevent migration :
 Development of rural and village industries can also prevent migration of the rural
population to urban areas in search of employment.
4. Utilisation of Local Resources:
 S.S.I. use local resources e.g. coir, wood and other products.
5. Equitable distribution of rational Income:
 Small Scale Industries and cottage Industries ensure equitable distribution of national
income.
 This helps to reduce the gap between rich and the poor in the country.
6. Balanced Regional development –
 These enterprises are often dependent on local source of production.
  This way, industries do not just limit themselves to a particular place but diversify.
 This helps in balanced regional development.

Problem of Small Scale Industries:

1. Finance:
 Non-avalability of sufficient funds in order to carry out business operations is an
important problem faced by small scale industries.
 Banks hesitate to grant financial help to these units.
2. Raw Material & Power:
 Small scale units are unable to buy raw materials in bulk due to lack of funds and
storage facilities.
 Shortage of power is another factor which leads to underutilisation of plant capacity.
3. Marketing:
 Small scale units generally face difficulties in marketing of their products and services as
they are hardly any funds for Advertising or sales promotion.
 They depend on intermediaries who exploit them.
4. Technology:
 Majority of small scale enterprises are using old techniques of production because they
cannot afford new techniques, machines and equipments necessary for modernising
product.
 As a result, their cost of production increases.
5. Competition:
 Small scale firms face competitions not only from large industries but also from
multinational companies.
6. Other problems :
- Lack of Managerial Efficiency.
- Lack of Demand of Produced Goods.
- Labour Problems.
- Burden of Local Taxes.
- Poor Product Quality.

GOVERNMENT ASSISTANCE TO SMALL INDUSTRIES AND SMALL BUSINESS UNITS

(A). INSTITUTIONAL SUPPORT :
I. National small Industries Corporation (NSIC)
 This was set up in 1955 to promote, aid and foster the growth of small scale units in
India.
 Main constraint faced by entrepreneurs is shortage of funds to purchase machinery and
equipment.
 Non availability of finance, deprives many new entrepreneurs from availing
opportunities.
 NSIC was established to cater to this need of entrepreneur.
Main functions of NSIC :
 It supplies imported machines and raw materials to small industries on easy hire-
purchase schemes.
 It export the products of small units.
 It provides technology to small scale Industries.
 Helps in upgradation to technology.
 Provides in upgradation of technology
  Provides various equipment on lease basis.
 Undertakes construction of industrial eastates.

II. District Industries Center (DIC)

The concept of DIC came during 1978, when govt. of India announced the new Industrial policy on 23rd
Dec, 1977. The main objective of DICs is to make available all necessary services at one place. The
finance for setting up DICs in a state are contributed equally by particular state Govt. and Central Govt.

Functions of District Industries Center

 Act as the focal point of industrialization of the district
 Identifies projects for setting up of SSI units.
 Issues permanent registration certificate to SSI units.
 Provides marketing support to SSI units
 Act as a link between the entrepreneurs and the lead bank of district.
 Helps businessman in obtaining licence from Electricity board, water supply board etc.

Govt. Incentives to hilly backward and Rural Areas

1. Power:
 Some states supply power at a concessional rate of 50%.
2. Tax holidays:
 Exemption from payment of tax for 5 years.
3. Land and Water :
 Availability of land at confessional rate. Water is supplied on no profit no loss basis.
4. Octroi :
 Most of the states have abolished octroi.
5. Protective Measures:-
 The government reserved 800 items for exclusive production by the small scale Industries and
give priority in allocation of raw materials and machines.
6. Marketing Assistance :-
 Government tries to solve their marketing problem by improving information and in order to
provide guarantee for sale of goods.
7. Finance:
 Subsidy of 10-15% for building capital asset. Loans are offered at confessional rates.
8. Sales Tax :
 In all Union Territories, small industries are exempted from sales tax while some states give
exemption of 5 years.

Entrepreneurship Development:
 Entrepreneur is the person who sets up his own business unit.
 Entrepreneurship is the process of setting up one's own business unit.
 Enterprise is the outcome of the entrepreneurship.
 Entrepreneurship can be understood as a systematic, purposeful and creative activity performed
by an entrepreneur to translate business idea into desired monetary results.

1. Systematic Activity :
 It is not a spontaneous activity.
 One needs special knowledge to complete this activity in a disciplined manner.
2. Lawful and purposeful activity:
  It is related to the establishment of a lawful and purposeful business.
 It aims at providing value (goods & services) to the buyers, and profit to the
entrepreneur.
3. Innovation:
 New combinations of different modes of production are created.
 Example-new technique, new products, new raw material & new marketing
methods.
4. Organisation of Production:
 New methods of production are adopted.
5. Risk-Taking:
 It is surrounded by risk on every side.
 Hence risk can't be separated from entrepreneurship.

Need for Entrepreneurship:

The need for entrepreneurship in indicated from the following facts—
1. Initiating the process of development :-
 The establishment of more and more business reflects the development of a
country.
2. Sustaining the development :-
 Rate of development is sustained (maintained) with the help of entrepreneurship.
3. Providing employment opportunity :-
 Entrepreneurship not only provides the scope for self-employment but also offers
employment to large number of people.
4. Social benefits:-
 By making optimum utilisation of resources, they save scare resources of society.

Startup India:
Startup is a business enterprise in the form of Private Ltd., Company, Partnership, Limited Liability
partnership or Sole Proprietor, registered in India, which was started less than 5 years ago and have an
annual turnover of less than 25 crore.
This is an initiative of the Government of India with an objective to carve a strong ecosystem for
nurturing innovation and startups in the country.
The scheme aims to:
 Develop entrepreneurial culture
 Create awareness about how to be an entrepreneur
 Encourage more dynamic startups by motivating educated youth into entrepreneurship
 Working towards innovation, development or commercialisation of product/service/process
driven by technology/IPR

Funding options for startups to help raise capital/ways to fund start up:
1. Boot Strapping:-
 To start business, self-funding is first option.
 It is also known as self-funding.
 It is a good option of funding only if the initial requirement is small and handy.
2. Crowd Funding:-
 Fund is gradually collected from a large number of people.
 It is done through the medium of internet by giving detailed information of the
startup.
 3. Angel Investment :-
 In this method, the rich people with surplus cash and having interest in
development of start up get ready to invest in the business.
4. Venture Capital:-
 Under this method, funds are professionally managed in companies that have huge
potential.
5. Funding from Incubators and Accelerators:-
 Incubators is the financial assistance provided at the starting stage by financial
institutions Funding is done for developing the organisation
 Funding for developing the organisation after startup is known as acceleration.
6. Non-Banking Financial Companies (NBFCs):-
 The startups who can't fulfil the conditions of commercial Banks can easily get the
financial help from NBFCs.

Intellectual Property Rights (IPR)

 Intellectual Property refers to the intellectual creativity of a person. It is legally

recognised exclusive rights given to the creator of their creations like invention, art
work, musical, literary, symbols, names, designs, images, discoveries etc.
 IPR gives the entrepreneur property right as intangible assets.
 Industrial Property includes inventions (Patents)
 Copyright includes literary and artistic works.

Types of Intellectual Property –

1. Copy right –
 It is the Right conferred upon creators library, artistic, musical, sound recording and
cinematographic film
2. Trademark –
 It is any word, name or symbol (or their combination) that lets us identify the goods
made by individual companies.
There are two types of trademarks-
 Conventional trademark- words, colour combination, label, logo, packaging, shape
of goods etc.
 Non-conventional trademark- Those marks which were not considered distinctive
previously but started getting recognition with passage of time i.e. sound mark,
dynamic mark etc.
3. Patent –
 It protects the scientific inventions (products and/or process) which shows technical
advancement over the already known products.
 This prevents them from making, using, offering for sale, selling or importing the
invention.