Chapter - 9 SMALL BUSINESS

Small scale industries contribute significantly to the development process and acts as a
vital link in industrialization in terms of production, employment and exports for economic
prosperity by widening the entrepreneurial base and use of local raw materials and indigenous
skills.

Types of Small Business

Business enterprises are classified as Manufacturing Enterprises, Service Enterprises,

Village Industries and Cottage Industries. Among these manufacturing and service enterprises
are again subdivided into Micro, Small and Medium Enterprises. The definition used by the
Government of India to describe small industries is based on the investment in plant and
machinery. The Micro, Small and Medium Enterprises Development (MSMED) Act 2006 has
been passed by the Government of India to address the issues of small enterprises.

Investment in Plant and Machinery

Types of Business
Manufacturing Enterprises Services Enterprises
Micro Enterprise Not exceeding Rs. 25 Lakhs Not exceeding Rs. 10 Lakhs
More than Rs. 25 Laksh but More than 10 lakhs but not
Small Enterprise
not exceeding Rs. 5 crores exceeding 2 cores
More than 5 crores but not More than 2 crores but not
Medium Enterprise
exceeding 10 cores exceeding 5 crores

Village Industries – They are located in rural area which produces any goods, renders any
service with or without the use of power and in which the fixed capital investment per head or
artisan or worker is specified by the central government from time to time.

Cottage Industries – They are also known as Rural Industries or Traditional Industries. They
are not defined by capital investment criteria but on the basis of characteristics, which are as
follows:
i. These are organised by individuals with private resources.
ii. Normally use family labour and locally available talent.
iii. Simple equipments are used.
iv. Small capital investment.
v. Produce simple products, normally in their own premises.
vi. Production of goods using indigenous technology.

Role of Small Business in Rural India

Small business organizations play an important role in the socio economic development of the
country. Some of them are as follows:
a. Multiple sources of income for family.
b. Self employment opportunities in commerce, manufacturing and service segments.
c. Promotion of agro based rural industries.
 d. Employment opportunities for artisans and the weaker sections of society.
e. Migration of rural people to urban areas in search of employment has been stopped.
f. Helped to solve the problem of poverty and unemployment.
g. Helped to reduce the income inequalities up to a certain extent.
h. Accelerated industrial growth of the country.

Problems of Small Business – Following are the major problems faced by small business in
India:

1. Finance – One of the severe problems faced by SSIs is that of non-availability of

adequate finance to carry out its operations.
2. Raw materials – Availability and procurement of raw material is another major problem
faced by the SSIs. Their bargaining power is relatively low due to the small quantity of
purchases.
3. Managerial skills – SSIs are generally promoted and operated by single person, who may
not possess all the managerial skills required to run the business. They are also not in a
position to afford professional managers.
4. Labour – Productivity per employee is relatively low and employee turnover is generally
high due to low remuneration. It also faces lack of specialization.
5. Marketing – In most of the cases, marketing is a weaker area of small organisations;
therefore exploitation of middlemen is very more.
6. Quality – Many small businesses do not follow the desired standards of quality due to
shortage of finance and resources.
7. Capacity utilization – Many of the SSIs are operating below full capacity due to lack of
marketing skills or demand. It will cause to increase its operating cost and leads to
sickness and closure of the business.
8. Technology – Most of the SSIs use outdated technology, resulting in low productivity and
uneconomical production.
9. Sickness – Due to many internal and external problems, most of the SSIs are in the edge
of sickness.
10. Global competitions – Most of the SSIs face competitions not only from medium and
large industries, but also from Multinational Companies in the areas of quality, technology,
finance, managerial skills etc.

Government Assistance to Small Industries and Small Business Units

Government provides various support measurers and programs for the promotion of
small and rural Industries, some of them are given below:

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

 Set up in 1982 for integrated rural development.
 Provides finance to small industries, cottage and village industries and artisans.
 Offers counseling and consultancy services.
 Training and development programs for rural entrepreneurs.
b. Rural Small Business Development Centre (RSBDC)
 It is an initiative of world association for small and medium entrepreneurs.
 It is sponsored by NABARD.
 Giving management and technical assistance to micro and small entrepreneurs in
rural areas.
 Organizing programs on rural entrepreneurship, skill upgradation workshop,
training programs etc.
c. National Small Industries Corporation (NSIC)
 Set up in the year 1955 to promote and foster the growth of SSIs in India.
 Supply of indigenous and imported machines on hire purchase basis.
 Supply of raw materials – locally and imported.
 Support in export of products.
 Monitoring and advisory services.
 Providing latest technology.
 Awareness on technological upgradation.
 Development of software technology parks and technology transfer centres.

d. Rural and Women Entrepreneurship Development (RWED)

 To create a business environment to encourage rural and women entrepreneurs.
 To enhance the productivity of labors and institutions.
 To provide training for women entrepreneurs.
 To give advisory services in all respects.

e. Scheme of Fund for Regeneration of Traditional Industries (SFURTI)

 Established in 2005 to make traditional industries more productive and
competitive.
 Implemented by Ministry of Agro and Rural Industries in collaboration with State
Governments.
 To develop clusters of traditional industries in various part of the country.
 To make traditional industries more innovative and profitable.
 To create sustainable employment opportunities in traditional sector.
f. District Industries Centres (DICs)
 Established in 1978
 To support small entrepreneurs at district level.
 Provides all facilities and support to set up small and village industries.
 Identification of suitable schemes for entrepreneurs by Central and State Govts.
 Preparation of feasibility reports on each industry.
 Arrangement of credit facilities and equipments.
 Arrangement of raw materials.
 To impart training for artisans, entrepreneurs etc.
Entrepreneurship Development

The word entrepreneur is derived from the French verb entreprende, which means to
undertake. Entrepreneurship is the process of setting up of one’s own business. The person
who sets up the business is entrepreneur and the outcome of the process (business unit) is
called enterprise.

“Entrepreneur is a person who organizes the business, undertakes the risk and enjoys the
profit” – Richard Cantillon_French Economist.

An entrepreneur is basically a businessman and he brings together the factors of production

such as land, labour and capital and organizes it. An entrepreneur is more than a businessman,
if a businessman brings some innovation to his activities and eyes on value addition to his
products or services, he is called an entrepreneur. In fact, all entrepreneurs are businessmen,
but all businessmen are not entrepreneurs.

“Entrepreneurship is the purposeful activity of an individual or a group of associated

individuals, undertaken to initiate, maintain or organize profit oriented business unit for
production or distribution of economic goods and services.”

Characteristics of Entrepreneurship

1. Systematic activity – Entrepreneurship is a systematic, step by step and purposeful

activity. It requires skill, knowledge and competency which can be acquired, learnt and
developed through education, training, observation and experience. Thus we can say
the entrepreneurs are made but not born.
2. Lawful and purposeful activity – The aim of entrepreneurship is to run a lawful
business.
3. Brings innovation and creativity to the business.
4. Organizes production – The entrepreneur brings the idea of business and the factors of
production, thus he organizes the production activities.
5. Risk taking – The entrepreneur takes all the risks in the business as he brings all the
factors of production including capital.

Startup India Scheme

Startup India Scheme is an important initiative by Govt. of India to promote a strong ecosystem
for nurturing innovation and startup (new enterprises) in the country. As per the notification of
the Ministry of Commerce and Industry, a startup means:

1. An entity incorporated or registered in India.

2. Not older than 5 years.
3. Annual turnover does not exceed Rs.25 crores in any preceding year.
4. Working towards innovation, development or comercialisation of products or services
with the support technology or Intellectual Property Rights (IPR) and Patents.
Popular Startups in India – Paytm, Flipcart, Snapdeal, Swiggy, Bigbasket, Byju’s App, Ola
Cabs, Make My Trips, ShopClues, OYO Rooms, Zomato, Redbus, Uber Eats etc.

Aims and Objectives of Startup Scheme:

1. Trigger an entrepreneurial culture.

2. Create awareness about the charms of entrepreneurship among the youth.
3. Encourage more dynamic startups by motivating educated youth as a good career.
4. To support the startups in various stages such as pre-startup stage, nascent (beginning
stage) and early post startup stage.
5. To promote under represented target groups such as women, back communities,
scheduled castes, scheduled tribes etc.

Startup India – Action Point

1. Simplification and hand-holding – Formalities simplified and extended support to the

startup ventures.
2. Startup India Hub – To create a single point contact for the entire startup system and to
enable knowledge exchange and access to funding.
3. Legal support and fast tracking Patent Examination – To give protection for patents,
trademark and designs of innovative startups through SIPP (Startups Intellectual
Property Protections).
4. Easy Exist – In the event of failure and wind up of operations, procedures are adopted
to reallocate capital and resources towards more productive avenues. Thus the
entrepreneurs can easily exit from the business if required.
5. Incubator setup – The government envisages setting up of incubators across the
country in PPP mode (Private Public Partnership).
6. Tax exemption – The profit of startup initiatives are exempted from Income Tax for a
period of 3 years.

Ways to fund startup

1. Boot Strapping – Self financing by the promoters from their personal savings and
resources.
2. Crowd Funding – Pooling resources by a group of people for a common goal especially
through internet platforms.
3. Angel Investment – Angel investors are the individuals with surplus cash who have
keen interest to invest in startups. They also offer mentoring or advice along with capital.
4. Venture Capital – Venture capitalists provide professionally managed funds to
companies and startups that have huge potential. It is also called risk capital as it is
invested in new ventures. Eg: Accel Partners, Blume Ventures etc.
5. Business Incubators and Accelerators – Incubators provide funds for startups in the
early stage of its business, whereas accelerators help the startups to run or to take a
giant leap in business. Eg: Angel Prime, Khosla Labs, Startup Village etc.
 6. Microfinance and NBFCs – Microfinance is a category of financial services targeted at
individuals and small business who lack access to conventional banking or who have not
qualified for a bank loan. Eg: BSS Microfinance P Ltd. , Asirvad Microfinance Pvt. Ltd.
etc.

NBFCs (Non Banking Financial Companies) are registered under Indian Companies Act
and they perform only lending functions to public and they cannot accept deposits. Eg:
Mahindra & Mahindra Financial Services Ltd., Muthoot Finance Ltd., Bajaj Finance Ltd.
etc.

Intellectual Property Rights (IPR)

Intellectual Property is a category of property that includes intangible creations of human

intellect. The most prominent types of intellectual properties are trade secrets, copyrights,
patents, trademarks etc. All inventions begin with an idea. Once the idea becomes an actual
product, that idea is treated as an intellectual property. The legal rights conferred on such
products (idea) are called IPR. Once it is allotted to a person by the Govt. authority, he/she can
rent, give or sell it to others.

Intellectual property is divided into two categories: Industrial properties like trademarks,
industrial designs etc. and copyrights which includes literary and artistic works such as
novels, poems, plays, films music, photographs, drawings, paintings, sculptures, architectural
designs etc.

Importance of IPR

1. Path-breaking inventions – It encourages new inventions in all segments. Eg: Cancer

cure medicines.
2. Incentive – It incentivizes inventors, authors, creators etc. for their work.
3. Helps to prevent loss of income – It allows the inventor to sell the rights to third parties
and thus he/she can generate income.
4. Recognition – It helps authors, creators etc. to get recognition for their work.

Famous Legislations and Agreements on IPR

1. TRIPS – Trade-Related Intellectual Property Systems Agreement (a part of WTO).

2. Trade Mark Act 1999.
3. Geographical Indications of Goods (Registration and Protection) Act 1999.
4. Designs Act 2000.
5. Protection of Plant Varieties and Farmers’ Rights Act 2001.
6. Patents Act 2005.
7. Copyright (Amendment) Act 2012.
Types of IPs

1. Copy Right – It is the right to “not copy” conferred upon the creators of literary, artistic,
musical, sound recording, films etc.
2. Trademark – Any word, name, or symbol that gives an identity to goods or service made
by an individual, company, organization etc.
3. Geographical Indication – GI is an identification which identifies agricultural, natural or
manufactured products originating from a definite geographical territory. Eg: Banaras
Brocades, Kashmiri Pashmina Woolen Shawl, Nagpur Orange etc.
4. Patent – It is an exclusive right granted by the government to prevent others from
making, using, offering for sale, selling or importing the invention. For an invention to be
patentable, it must be new, non-obvious (not easily discoverable) and having an
industrial application.
5. Design – It includes shape, pattern etc. that is applied to any article. Eg: Design of a
car, house, bottle etc. The term of protection of a design is valid for 10 years, which can
be renewed for further 5 years. After that it will come under public domain.
6. Plant Variety – It is a type of variety which is bred and developed by farmers. Eg: hybrid
versions of potatoes, rice, pepper etc. This lead to the growth of seed industry.
7. Semiconductor Integrated Circuits Layout Design – It is used to perform electronic
circuitry function. Eg; Computer Chip.

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