Class 11-commerce NCERT Solutions Business Studies Chapter 9: Small Business

Parameters used to measure the size of business:

1. Number of people employed in the business
2. Volume and value of business output
3. Capital investment in plant and machinery
4. Power consumption while running various business activities 

The Government of India defined small-scale industries as an industrial undertaking wherein investment in plant and machinery is less than rupees one crore. However, the investment in plant and machinery for small industries which concentrate on export promotion and modernisation should not exceed rupees five crores.

Features of cottage industry:

1. Owned and organised by individuals having private resources.
2. Less or minimal capital is required in these units.
3. Generates employment opportunities for many poor people. Sometimes, the whole family becomes part of the industry.
4. Equipment used is simple and labour-intensive.
5. Simple products are produced in cottage industries which generally take place in personal premises. 

Small-scale industries have played a prominent role in socioeconomic development of India.

Highlights of their contribution to the socioeconomic development of India are

1. Contribution: Approximately 95% of the industrial units of India fall under the category of small-scale industries. They add 40% of the gross industrial value to the economy. These industries also add 45% of the total exports to the economy.
2. Employment opportunities: Most small-scale industries prefer to have labour-intensive techniques because these help provide employment to people. These industries generate more employment as compared to large-scale industries. Processes do not require skill-based workers, and thus, these industries create opportunity for people seeking employment, making small-scale industries a boon for a country like India.
3. Extensive range of products: Enormous varieties of products are manufactured in India depending on customers' needs and requirements. These include readymade items, handicrafts, stationery, consumption goods and food items.
4. Regional balance: Small businesses use simple technology and local raw materials to produce simple things by setting up in the backward areas of the country. Thus, they contribute significantly to the overall balanced development of the nation.
5. Opportunity for entrepreneurship: Ample opportunity for entrepreneurship is provided by small-scale industries. This is because various talents or skills of people are used to start a business with minimum investment.
6. Low cost of production: Small-scale industries benefit from using local made raw materials which are easily available for their production. This lowers their cost of production. 

Role of  small business in rural India:

1. It generates employment opportunities for rural households which in turn give them an extra source of income. This helps in the development of weaker sections of society.
2. As soon as rural people have the opportunity of employment, it encourages them to address problems of poverty and improve their economic condition.
3. Many rural people migrate to urban areas in search of employment. However, when opportunities are easily available in rural areas, it would help in preventing migration of rural people to urban areas.
4. It plays an important role in equal distribution of income as small business provides employment opportunities to poor rural people and helps in increasing their income.
5. It contributes to growth by increasing the GDP of the country, providing employment opportunities and alleviating poverty in the country.

Problems faced by small-scale industries:

1. Insufficient funds: One of the major issues faced by small-scale industries is that of insufficient funds to carry out activities. They have to heavily depend on local financial resources for funds. These locals exploit people thereby depriving them of adequate funds. Banks too are not eager to provide loans to borrowers who do not have adequate collateral security.
2. Raw materials: Procurement of raw materials is another problem faced by these industries. Unavailability of raw materials at local markets forces them to buy materials at higher rates. Unacceptable and unaffordable rates forces the buyers to buy low-quality materials thereby affecting their quality of production. Also, when the buyers purchase goods in small quantities, they are left with no margin to bargain, which increases their cost. Because of lack of space for storage, materials cannot be bought in bulk. In addition, poor transport system and the faulty supply mechanism often result in irregular supply of raw materials.
3. Lack of managerial skills: A business operated on a small scale does not consist of people having managerial skills. Many of these people possess sound technical knowledge; however, they are not good in marketing the output. Also, it becomes burdensome for them to take care of all functions at the same time when they do not have enough knowledge of the same.
4. Marketing: It is one of the most important activities in a business. Small-scale businesses may not have expertise in marketing; hence, they need to be promoted through middlemen. The middlemen exploit owners of small-scale enterprises by paying them low prices and delaying their payments unnecessarily.
5. Quality: These businesses sometimes are unable to control their quality of products. This is because they focus on cutting costs and keeping prices low. This hampers the quality of product.
6. Technology: Use of outdated technologies lowers productivity. It makes operations unfeasible and leads to uneconomical production. 

Small-scale industries play a crucial role in the growth and development of the nation. Despite their contributions, two major areas which affect and slow down small businesses are finance and marketing. The government therefore has taken initiatives to get rid of these issues. They have established the following agencies to assist and support small businesses:

1. National Bank for Agriculture and Rural Development (NABARD) was established in 1982 with the intention of promoting integrated rural development which involves agriculture, small-scale industries and cottage and village industries.
2. The Rural Small Business Development Centre (RSBDC) is a one of a kind institute by the World Association for Small and Medium Enterprises. It is sponsored by NABARD and works for the betterment of socially and economically disadvantaged individuals and groups and aims at promoting technical support in rural areas to current and prospective micro and small entrepreneurs.
3. National Small Industries Corporation (NSIC) was created in 1955 to encourage, assist and foster the growth of small business units in the country. It performs the following functions:
1. Supply machines on easy hire-purchase terms
2. Procure, supply and distribute indigenous and imported raw materials
3. Export products of small business units and develop export-worthiness
4. Mentoring and advisory services
5. Creating awareness on technological upgradation
6. Developing software technology parks and technology transfer centres
4. Small Industries Development Bank of India (SIDBI) was set up as an apex bank in 1989 to provide direct/indirect financial assistance to various small business organisations and to coordinate functions of other institutions.
5. The National Commission for Enterprises in the Unorganized Sector (NCEUS) was constituted in 2004 with the objectives of recommending measures to improve productivity, to generate employment, to enhance global competitiveness and to provide raw materials.
6. Rural and Women Entrepreneurship Development (RWED) was devised to promote a business environment which can boost institutional and human capacities and help women take entrepreneurial initiatives in rural areas.

Moreover, the government has launched various programmes for rural development with intent to generate employment opportunities, to develop rural areas and to make rural people self-sufficient.

Incentives provided by the Government for industries in backward and hilly areas are

1. Land: It is provided by the government at concessional rates to people in the backward region. Although the terms and conditions may vary, some industries are charged with rent in the initial years and some are allowed to pay in instalments. This makes it easier to set up a business at a low cost.
2. Water: It is supplied for 5 years on a no-profit and no-loss basis with 50% concession or exemption from water charges.
3. Power: It is an indispensable requirement for the functioning of industries. Thus, it is supplied at 50% concessional rate, whereas some states may exempt units from paying in the initial years.
4. Sales tax: Many states exempt industries from paying sales tax, while some states extend exemption for five years.
5. Octroi: It is scrapped by many states.
6. Raw materials: Preference is given to backward areas with respect to allotment of scarce resources.