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Karnataka 1st PUC Business Studies Question Bank Chapter 9 Small Business
1st PUC Business Studies Small Business Text Book Questions and Answers
Short Answer Questions
What are the different parameters used to measure the size of business?
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.
What is the definition used by the Government of India for Small Scale Industries?
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.
How would you differentiate between an ancillary unit and a tiny unit?
- An ancillary unit is the unit which supplies not less than 50% of its production to the parent unit.
- Investment limit in such unit is one crore.
- Parent unit assists the ancillary unit by providing technical and financial help.
- A tiny unit is the business enterprise whose investment in plant and machinery is not more than Rs.25 lakh.
- Investment limit is Rs.25 lakh in this type of unit.
- No such assistance is there.
State the features of cottage industries.
These are also known as Rural Industries or Traditional Industries. They are not defined by capital investment criteria as in the case of other small scald industries. However, cottage industries are characterised by certain features like the following:
- These are organised by individuals, with private resources.
- Normally use family labour and locally available talent.
- The equipment used is simple.
- Capital investment is small.
- Produce simple products, normally on their own premises.
- Production of goods using indigenous technology.
Long Answer Questions
How do small scale industries contribute to the socio-economic development of india?
India is 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 way:
(i) Contribution in GDP:
Small industries in India account for 96% of the industrial units in the country. They contribute almost 40% of the gross industrial value added in the economy.
(ii) 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.
(iii) 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.
(iv) Variety of Production:
Smal industries produce a wide variety of products ranging from mass consumption goods, readymade, garments,hosiery goods, stationery items, soaps anddetergents, domestic utensils, leather, plastic and rubber goods, processed foods and vegetables, wood and steel fimriture, paints, varnishes, safety matches, etc. to the sophisticated items like electric and electronic goods, drugs and pharamaceuticals, 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.
(v) 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 et up anywhere in the country.
(vi) Entrepreneurship Development:
Small industries provide opportunity for entrepreneurship development in the country. The latest skills and talents of people can be transformed into business ideas with litle capital investment and almost nil formalities to start a small business.
(vii) 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 and running costs of small industries are lower because of low overhead expenses.
(viii) Quick Decision making:
Due to the small size of the organizations quick and timely decisions can be taken without cnsulting many people. New business opportunities can therefore be captured at the right time.
(ix) Customized production:
Small industries can design the product as per the tastes/preferences/needs of individual customers. They can provide customized products for 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.
(x) 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 interfee in the functioning of a small scale unit.
Describe the role of small business in rural India.
Small scale enterprises provide numerous benefits in rural area. The role of small business in rural India is explained in the following points:
(i) Non – farm Employment:
Traditionally, rural households in India were exclusively engaged in agriculture. But now rural households have varied and multiple sources of income and participate in a wide range of non – agricultural activities such as wage employment and self employment in commerce, manufacturing and services, along with the traditional rural activities of forming and agricultural labour. This can be largely attributed to the setting up of agro-based rural small industries.
(ii) Employment for Artisans:
Cottage and rural industries play an important role in providing employment opportunities in the rural areas, especially for the traditional artisans and the weaker sections of society.
(iii) Prevention of Migration:
Development ofrural and village industries can also prevent migration of rural population to urban areas in search of employment.
(iv) Poverty Alleviation:
Village and small industries are significant as producers of consumer goods and absorbers of surplus labour, thereby addressing the problems of poverty and unemployment. Promotion of small scale industries and rural industrialization has been considered by the Government of India as a powerful instrument for realizing the twin objective; of accelerated industrial growth and creating additional productive employment potential in rural and backward areas ’.
(v) Socio-economic Aspects:
These industries contribute to other socio-economic aspects, such as reduction inequalities, dispersed development of other sectors of the economy.
Discuss the problems faced by small scale industries.
Small businesses have been facing a large number problems compared to large scale industries. The scale of operations, shortage of funds, and procurement of raw materials are some of them. The detailed descriptions of problems are as follows:
One of the severe problems faced by SSIs is that of non-availability of adequate finance to carry out its operations. Generally, a small business begins with a small capital base. Many of the units in the small sector lack the credit worthiness required to raise as capital from the capital markets.
As a result, they heavily depend on local financial resources and are frequently the victims of exploitation by the money lenders. These units frequently 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.
Banks also do not lend money without adequate collateral security or guarantees and margin money, which many of them are not in a position to provide.
(ii) Raw materials:
Another major problem of small 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. Their bargaining power is relatively low due to the small quantity of purchases made by them.
Also, they cannot afford to take the risk of buying in bulk as they have no facilities to store the materials. Because of general scarcity of metals, chemicals and extractive raw materials in the economy, the small scale sector suffers the most. This also means a waste of production capacity for the economy and loss of further units.
(iii) Managerial skills:
Small business is generally promoted and operated by a single person, who may not possess all the managerial skills required to run the business. Many of the small business entrepreneurs possess sound technical knowledge but are less successful in marketing the output. Moreover, they may not find enough time to take care of all functional activities. At the same time they are not in a position to afford professional managers.
Small business firms cannot afford to pay higher salaries to the employees, which affects employees willingness to work hard and produce more. Thus, productivity per employee is relatively low and employee turn over is generally high. Because of lower remuneration offered, attracting talented people is a major problem in small business organisations.
Unskilled workers join for low remuneration but training them is a time consuming process. Also, unlike large organisations, division of labour cannot be practised, which results in lack of specialisation and concentration.
Marketing is one of the most important activities as it generates revenue. Effective marketing of goods requires a thorough understanding of the customer’s needs and requirements. In most cases, marketing is a weaker area of small organisations.
These organisations have, therefore, to depend excessively on middlemen, who at times exploit them by paying low price and delayed payments. Further, direct marketing may not be feasible for small business firms as they lack the necessary infrastructure.
Many small business organisations do not adhere to desired standards of quality. Instead they concentrate on cutting the cost and keeping the prices low. They do not have adequate resources to invest in quality research and maintain the standards of the industry, nor do they have the expertise to upgrade technology. In fact maintaining quality is their weakest point, when competing in global markets.
(vii) Capacity utilisation:
Due to lack of marketing skills or lack of demand, many small business firms have to operate below full capacity due to which their operating costs tend to increase. Gradually this leads to sickness and closure of the business,
Use of outdated technology is often stated as serious lacunae in the case of small industries, resulting in low productivity and uneconomical production.
Prevalence of sickness in small industries has become a point of worry to both the policy makers and the entrepreneurs. The causes of sickness are both internal and external. Internal problems include lack of skilled and trained labour and managerial and marketing skills. Some of the external problems include delayed payment, shortage of working capital, inadequate loans and lack of demand for their products.
(x) Global competition:
Apart from the problems stated above small businesses are not without fears, especially in the present context of liberalisation, privatisation and globalisation (LPG) policies being followed by several countries across the world. Remember, India too has taken the LPG path since 1991. Let us look into the areas where small businesses feel threatened with the onslaught of global competition.
- Competition is not only from medium and large industries, but also from multinational companies which are giants in terms of their size and business volumes. Opening up of trade results in cut throat competition for small scale units.
- It is difficult to withstand the quality standards, technological skills, financial creditworthiness* managerial and marketing capabilities of the large industries and multinationals.
- There is limited access to markets of developed countries due to the stringent requirements of quality certification like ISO 9000.
What measures has the government taken to solve the problem of finance and marketing in the small Scale sector?
The contribution of small scale industries is remarkable. Thus, Government has provided the following institutional support to solve the problem of finance and marketing in the small scale sector:
1. National Bank for Agriculture and Rural Development (NABARD):
NABARD was setup in 1982 to promote integrated rural development. Since then, it has been adopting a multi-pronged, multi-purpose strategy for the promotion of rural business enterprises in the country.
Apart from agriculture, it supports small industries, cottage and village industries, and rural artisans using credit and non-credit approaches. It offers counselling and consultancy services and organises training and development programmes for rural entrepreneurs.
2. The Rural Small Business Development Centre (RSBDC):
It is the first of its kind set up by the world association for small and medium enterprises and is sponsored by NABARD. It works for the benefit of socially and economically disadvantaged individuals and groups. It aims at providing management and technical support to current and prospective micro and small entrepreneurs in rural areas.
Since its inception, RSBDC has organised several programmes on rural entrepreneurship, skill upgradation workshops, mobile clinics and trainers training programmes, awareness and counselling camps in various villages of Noida, Greater Noida and Ghaziabad.
Through these programmes it covers a large number of rural unemployed youth and women in several trades, which includes food processing, soft toys making, ready-made garments, candle making, incense stick making, two-wheeler repairing and servicing, vermicomposting, and non conventional building materials.
3. National Small Industries Corporation (NSIC):
This was set up ini955 with a view to promote, aid and foster the growth of small business Units in the country. This focuses on the commercial aspects of these functions.
- Supply indigenous and imported machines on easy hire-purchase terms.
- Procure, supply and distribute indigenous and imported raw materials.
- Export the products of small business units and develop export worthiness.
- Mentoring and advisory services.
- Serve as technology business incubators.
- Creating awareness on technological upgradation.
- Developing software technology parks and technology transfer centres.
4. Small Industries Development Bank of India (SIDBI):
- Set up as an apex bank to provide direct/indirect financial assistance under different schemes, to meet credit needs of small business organisations.
- To coordinate the functions of other institutions in similar activities. Thus so far, we have learnt about the various institutions operating at the central level and state level in support of the small industries.
5. The National Commission for Enterprises in the Unorganised Sector (NCEUS):
The NCEUS was constituted in September 2004, with the following objectives:
- To recommend measures considered necessary for improving the productivity of small enterprises in the informal sector.
- To generate more employment opportunities on a sustainable basis, particularly in the rural areas.
- To enhance the competitiveness of the sector in the emerging global environment.
- To develop linkages of the sector with other institutions in the areas of credit, raw materials, infrastructure, technology upgradation, marketing and formulation of suitable arrangements for skill development.
The commission has identified the following issues for detailed consideration:
- Growth poles for the informal sector in the form of clusters/hubs, in order to get external economic aid.
- Potential for public-private partnerships in imparting the skills required by the informal sector.
- Provision of micro-finance and related services to the informal sector.
- Providing social security for the workers in the informal sector.
6. Rural and Women Entrepreneurship Development (RWED):
The Rural and Women Entrepreneurship Development programme aims at promoting a conducive business environment and at building institutional and human capacities that will encourage and support the entrepreneurial initiatives of rural people and women.
RWE provides the following services:
- Creating a business environment that encourages initiatives of rural and women entrepreneurs.
- Enhancing the human and institutional capacities required to foster entrepreneurial dynamism and enhance productivity.
- Providing training manuals for women entrepreneurs and training them.
- Rendering any other advisory services.
7. World Association for Small and Medium Enterprises (WASME):
It is the only International Non- Governmental Organisation of micro, small and medium enterprises based in India, which set up an International Committee for Rural Industrialisation. Its aim is to develop an action plan model for sustained growth of rural enterprises. Apart from these, there are several schemes to promote the non-farm sector, mostly initiated by the Government of India.
For instance, there are schemes for entrepreneurship through subsidised loans like Integrated Rural Development Programme (IRDP), Prime Minister Rojgar Yojana (PMRY), schemes to provide skills like Training of Rural Youth for Self Employment (TRYSEM), and schemes to strengthen the gender component like Development of Women and Children in Rural Areas (DWCRA).
There are schemes to provide wage employment like Jawahar Rojgar Yojana (JRY), food for work etc., on rural works programmes to achieve the twin objectives of creation ofrural infrastructure and generation of additional income for the rural poor, particular during the lean agricultural season. Last, but not the least, there are schemes for specific groups of industries such as khadi, handlooms and handicrafts.
8. Scheme of Fund for Re-generation of Traditional Industries (SFURTI):
To make the traditional industries more productive and competitive and to facilitate their sustainable development, the Central Government set up this fund with Rs. 100 crores allocation to begin within the year 2005. This has to be implemented by the Ministry of Agro and Rural Industries in collaboration with State Governments.
The main objectives of the scheme are as follows:
- To develop clusters of traditional industries in various parts of the country.
- To build innovative and traditional skills, improve technologies and encourage public-private partnerships., develop market intelligence etc., to make them competitive. pro-Stable and sustainable.
- To create sustained employment opportunities in traditional industries.
9. The District Industries Centers (DICs):
The District Industries Centers Programme was launched on 1, May 1978, with a view to providing an integrated administrative framework at the district level, which would look at the problems of industrialisation in the district, in a composite manner.
In other words District Industries Centers is the institution at the district level which provides all the services and support facilities to the entrepreneurs for setting up small and village industries. Identification of suitable schemes; preparation of feasibility reports, arranging for credit, machinery and equipment, provision of raw materials and other extension services are the main activities undertaken by these centers.
Broadly DICs are trying to bring change in the attitude of the rural entrepreneurs and all other connected with economic development in the rural areas.
Even within the narrow spectrum, an attempt is being made to look at some of the neglected factors such as the rural artisan, the skilled craftsman and the handloom operator and to tune up these activities with the general process of rural development being taken up through other national programmes. The DIC is thus emerging as the focal point for economic and industrial growth at the district level.
What are the incentives provided by the Government for industries in backward and hilly areas?
Some of the common incentives offered are discussed as below:
- 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 installments.
- Power: Power is supplied at a concessional rate of 50 percent, while some states exempt such units from payment in the initial years.
- Water: Water is supplied on a no-profit, no-loss basis or with 50 per cent concession or exemption from water charges for a period of 5 years.
- Sales Tax: In all union territories, industries are exempted from sales tax, while some states extend exemption for 5 years period.
- Octroi: Most states have abolished octroi.
- Raw materials: Units located in backward areas get preferential treatment in the matter of allotment of scarce raw materials like cement, iron and steel etc.
- Finance: Subsidy of 10-15 per cent is given for building capital assets. Loans are also offered at concessional rates.
- Industrial estates: Some states encourage setting up of industrial estates in backward areas.
- Tax holiday: Exemption from paying taxes for 5 or 10 years is given to industries established in backward, hilly and tribal areas.
1st PUC Business Studies Small Business Additional Questions and Answers
One Mark Questions
What do you mean by small business?
A business which operates on a small scale and required less capital, less labour and less machines is called small business.
Give full form of NSIC.
National small Industries Corporation (NSIC)
Give full form of DIC.
District Industries Centre (DIC)
What is mining?
The process or business of extracting ore or minerals from the ground.
Two Marks Questions
Define small business?
A small scale enterprise according to MSMED Act, 2006 is defined as one where the Investment in Plant and Machinery is more than 25 lacs but does not exceed Rs.5 crore.
What is a 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
What do you mean by ancillary industry?
These are industrial undertakings having fixed investment in plant and machinery not exceeding Rs. 1 crore engaged in or proposed to engage in,
- The manufacture of parts, components, sub-assemblies, tooling or intermediaries, or
- The rendering of services supplying 30 percent of their production or services as the case may be, to other units for production of other articles.
What is a tiny industry?
These refer to undertakings having fixed investment in plant and machinery not exceeding Rs. 23 lakhs. These also include undertakings providing services such as laundry, Xeroxing, repairs and maintenance of customer equipment and machinery, hatching and poultry etc. Located in towns with population less than 50,000.
Five Marks Questions
What are the objectives of small businesses?
The objectives of small businesses are:
- To create more employment opportunities with less investment.
- To remove economic backwardness of rural and less developed regions of the economy.
- To reduce regional imbalances.
- To mobilise and ensure optimum utilisation of unexploited resources of the country.
- To improve standard of living of people.
- To ensure equitable distribution of income and wealth.
- To solve unemployment problem.
- To attain self-reliance.
- To adopt latest technology aimed at producing better quality products at lower costs Industries
Explain the role of small scale industries in socio-economic development of India.
Role of small scale industries in socio-economic development of India:
- Employment: Small scale Industries are second largest employers of human resources after Agriculture. It has 95% of the industrial unit in the country.
- Variety of product: Small scale Industries produces an enormous variety of goods e.g. readymade garments, stationery, soaps, Leather s goods, Plastic and rubber goods.
- Export: The share of product from SSI is 45% of tota export from India. So it earn valuable foreign exchange and solve the problem of balance of payment.
- Balance regional development: S.S.I can be set anywhere in the country. They use local resources. Less capital and simple technology.
- Complementary to large scale Industries : S.S.I. supplies various types of components, spare parts, tools.
- Low cost of production: S.S.I. also enjoys the advantage of low cost of production because they used local resources in their product.
- Quick and timely decisions: Due to the small size of the organisation, quick and timely decisions can be taken without consulting many people
- Development of entrepreneurship: S.S.I. provides opportunity for young men and women to start their own business.
Briefly explain the role of small business in rural India.
Role of small business in rural India:
- 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.
- Improved Economic Condition: Small businesses provide multiple source of income to the rural households. S.S.I improves economic conditions and standard of living of people living in those Areas.
- Prevent migration: Development of rural and village industries can also prevent migration of the rural population to urban areas in search of employment.
- Utilisation of Local Resources: S.S.I. use local resources e.g. coir, wood and other products.
- Equitable distribution of national 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.
- 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
What are the different types of small industries?
- Manufacturing Industries: The industries that are liable for producing articles for processing and direct consumption industries are called as manufacturing industries. Some popular examples of this category are Power looms, khadi industries, engineering industries, processing industries, coin industries etc.
- Ancillary Industries: This industry is liable for producing small to bigger parts of every component that are used to render services in big industries.
- Service Industries: The well-known service sector is known for covering all light repair shops that are essential’to maintain all types of mechanical equipments. This industry is also known for the complete dependency on machines.
- Feeder Industries: The all time popular feeder industries are a specialized industry for some particular types of services and products and some of them are Welding, Casting and electro-plating, etc.
- Mining or Quarries: The branch of manufacture and trade based on the extraction of ores, fossil fuels, minerals, stone, clay, gravel, and similar commodities
Ten Marks Questions
Briefly explain the characteristics of small scale industry.
Ownership of small scale unit is withone individual in sole-proprietorship or it can be with a few individuals in partnership.
(ii) Management and control:
A small-scale unit is normally a one man show and even in case of partnership the activities are mainly carried out by the active partner and the rest are generally sleeping partners. These units are managed in a personalised fashion. The owner is activity involved in all the decisions concerning business.
(iii) Area of operation:
The area of operation of small units is generally localised catering to the local or regional demand. The overall resources at the disposal of small scale units are limited and as a result ofthis, it is forced to confine its activities to the local level.
Small industries are fairly labour intensive with comparatively smaller capital investment than the larger units. Therefore, these units are more suited for economics where capital is scarce and there is abundant supply of labour.
(v) Gestation period:
Gestation period is that period after which teething problems are over and return on investment starts. Gestation period of small scale unit is less as compared to large scale unit.
Small scale units as compared to large scale units are more change susceptible and highly reactive and responsive to socio-economic conditions. They are more flexible to adopt changes like new method of production, introduction of new products etc.
Small scale units use local or indigenous resources and as such can be located anywhere subject to the availability of these resources like labour and raw materials.
(viii) Dispersal of units:
Small scale units use local resources and can be dispersed over a wide territory. The development of small scale units in rural and backward areas promotes more balanced regional development and can prevent the influx of job seekers from rural areas to cities.
What are the incentives given by Govt, to Industries set up in hilly, backward & rural areas.
Govt. Incentives to hilly backward and Rural Areas:
- Power: Some states supply power at a concessional rate of 50%.
- Tax holidays: Exemption from payment of tax for 5 years.
- Land and Water: Availability of land at concessional rate. Water is supplied on no profit no loss basis.
- Octroi: Most of the states have abolished octroi.
- 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.
- Marketing Assistance: Government tries to solve their marketing problem by improving information and in order to provide guarantee for sale of goods.
- Finance: Subsidy of 10-15% for building capital asset. Loans are offered at concessional rates.
- Sales Tax: In all Union Territories, small industries are exempted from sales tax while some states give exemption of 5 years.
Write a short note on
1. 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 scale industries on easy hire- purchase schemes.
- It exports the products of small units.
- It provides technology to small scale Industries.
- Helps in upgradation of technology.
- Provides advisory service.
- Provides various equipment on lease basis.
- Undertakes construction of Industrial estates.
2. District Industries Centre (DIC):
The concept of DIC came during 1977, 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 Centre:
- Act as the focal point of industrialisation 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.