Revision Notes

CHAPTER 8
SMALL BUSINESS

A business which operates on a small scale and required less capital, less labour and less
machines is called small business. The goods are produces 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 both traditional Handlooms, Handicrafts, khadi and Village
Industries. Modern small Industries - Small scale industries and Power looms.

According to The Micro,Small and Medium Enterprise Development (MSMED) Act, 2006, a
small scale enterprise defined as one where the investment in Plant and Machinery is more
than Rs. 25 lakhs 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:

Category Manufacturing Unit Service Providers

Micro Enterprise Less than Rs. 25 Lakhs Less than Rs. 10 Lakhs

Between Rs. 25 Lakhs to Rs. 5 Between Rs. 10 Lakhs to Rs. 2

Small Enterprise
Crore Crore

Medium Between Rs. 5 Crore to Rs. 10

Between Rs. 2 Crore to Rs. 5 Crore
Enterprise Crore
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 abundants amount is 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. So it earn
valuable foreign exchange and solve the problem of balance of payment.

4. Balance regional development: SSI can be set anywhere in the country. They use local
resources, less capital and simple technology.

5. Complementary to large scale Industries: SSI. supply various types of components,

spare parts, tools etc, which are required by large scale enterprises.

6. Low cost of production: SSI 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 organization quick and timely
decisions can be taken without consulting many people.

8. Development of entrepreneurship: SSI provide 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 rural
areas ample labour is available.

2. Improve Economic Condition: Small business provide multiple source of income to the
rural households. SSI improves 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: SSI 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-availability of sufficient funds in order to carry out business operations is

an important problem faced by small scale industries. Bank sit at 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 under
utilization 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 equipment 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:

1. It supplies imported machines and raw materials to small industries on easy hire-purchase
schemes.
2. It export the products of small units.
3. It provides technology to Small Scale Industries.
4. Helps in up gradation to technology.
5. Provides in up gradation of technology
6. Provides various equipment on lease basis.
7. Undertakes construction of industrial estates.

II. District Industries Center (DIC)

The concept of DIC came during 1977, when Government 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

1. Act as the focal point of industrialization of the district

2. Identifies projects for setting up of SSI units.
3. Issues permanent registration certificate to SSI units.
4. Provides marketing support to SSI units
5. Act as a link between the entrepreneurs and the lead bank of district.
6. Helps businessman in obtaining license from Electricity board, water supply board etc.

Govt. Incentives to hilly backward and Rural Areas

1. Power: Some states supply power at a confessional 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 offer data confessional
rates.

8. Sales Tax: In all Union Territories, small industries are exempted from sales tax while
some states give exemption of 5 years.

III. National Bank for Agriculture and Rural Development (NABARD)

IV. The Rural Small Business Development Centre (RSBDC)
V. Small Industries Development Bank of India (SIDBI)
VI. The National Commission for Enterprises in the Unorganised Sector (NCEUS)
VII. Rural and women Enterpreneurship Development (RWED)
VIII. World Association for Small and Medium Enterprise(WASME)
IX. Scheme of Fund for Re-generation of Traditional Industries (SFURTI)