Class 11 Business Studies Notes Chapter 9 (Small Business) – Business Studies Book

Detailed Notes with MCQs of Chapter 9: Small Business. This is a crucial chapter, not just for your Class 11 understanding but also because the small-scale sector forms the backbone of the Indian economy, making it a very relevant topic for various government examinations. Pay close attention to the definitions, roles, problems, and government support mechanisms.

NCERT Class 11 Business Studies - Chapter 9: Small Business

(Detailed Notes for Government Exam Preparation)

1. Introduction & Meaning

• Small businesses, including Small Scale Industries (SSIs), play a vital role in the socio-economic development of India. They contribute significantly to employment generation, industrial production, and exports.
• They are generally characterised by smaller investment, labour-intensive techniques, local operations, and flexibility.

2. Definition and Classification (Based on Investment Limits - Note: These limits might be based on older classifications often found in textbooks; current definitions under the MSMED Act, 2006 and its amendments use composite criteria of investment AND turnover. Always check the latest government notifications for exam purposes, but understand the textbook context first.)

The definition primarily relies on the investment made in plant and machinery (for manufacturing units) or equipment (for service units).

• (As typically presented in older NCERT context):
  • Micro Enterprise: Investment in plant & machinery up to ₹25 Lakh.
  • Small Enterprise: Investment in plant & machinery above ₹25 Lakh and up to ₹5 Crore.
  • Medium Enterprise: Investment in plant & machinery above ₹5 Crore and up to ₹10 Crore.
  • (Similar limits existed for service enterprises, often lower than manufacturing).
• Ancillary Small Industrial Unit: Supplies not less than 50% of its production to one or more parent units. Investment limits are the same as for Small Enterprises.
• Export Oriented Unit (EOU): Exports more than 50% of its output. Investment limits are the same as for Small Enterprises.
• Tiny Enterprise: Investment in plant & machinery up to ₹25 Lakh (often considered a sub-category within Micro/Small).
• Village Industries: Located in rural areas, investment in fixed assets (plant & machinery, land, building) per head of artisan or worker does not exceed a specified amount (often ₹50,000, but check specific schemes like KVIC).
• Cottage Industries: Also known as rural industries or traditional industries. They are not defined by capital investment but by characteristics like:
  • Operated by individuals with private resources.
  • Normally use family labour and locally available talent.
  • Use simple equipment.
  • Small capital investment.
  • Produce simple goods, often in their own premises.
  • Usually cater to local markets.

3. Characteristics of Small Businesses

• Personal Character/Ownership: Often organised as sole proprietorships or partnerships. Management and control usually rest with the owner(s).
• Management: Owner actively participates in day-to-day operations.
• Limited Reach: Operations are generally localised, catering to nearby markets.
• Labour Intensive: Rely more on labour than capital-intensive technology.
• Flexibility: Adaptable to changing business environments due to smaller size and simpler structure.
• Resource Utilisation: Tend to use local resources effectively.
• Decentralised: Dispersed across different parts of the country, unlike large industries concentrated in specific areas.

4. Role of Small Business in India

• Employment Generation: Second largest employer after agriculture, crucial for creating jobs, especially in rural and semi-urban areas due to labour-intensive nature.
• Output Generation: Contribute significantly to the overall industrial production of the country.
• Contribution to Exports: Account for a substantial share of India's total exports, earning valuable foreign exchange. Products range from traditional items to sophisticated manufactured goods.
• Balanced Regional Development: Promote industrial development in rural and backward areas, reducing regional disparities in income and wealth.
• Mobilisation of Local Resources: Help mobilise local savings, entrepreneurial talent, and indigenous raw materials which might otherwise remain unutilised.
• Equitable Distribution of Wealth: Promote wider dispersal of ownership and income, preventing concentration of economic power.
• Opportunities for Entrepreneurship: Provide avenues for individuals with limited capital to start their own ventures, fostering entrepreneurial spirit.
• Complementary to Large Industries: Act as ancillary units, supplying components, intermediates, etc., to large industries.
• Low Cost of Production: Benefit from lower overheads, establishment costs, and use of local resources, potentially leading to lower production costs.
• Quick Decision Making: Simple organisational structure allows for faster decision-making.
• Meeting Consumer Needs: Cater to specific, often localised, consumer demands effectively.

5. Problems Faced by Small Businesses

• Finance:
  • Difficulty in accessing adequate and timely credit from banks and financial institutions.
  • Often lack collateral security.
  • Limited access to capital markets.
  • Dependence on local moneylenders charging high interest rates.
• Raw Materials:
  • Difficulty in procuring sufficient quantity and quality of raw materials.
  • Lack bargaining power to purchase in bulk at lower prices.
  • Sometimes forced to compromise on quality.
• Managerial Skills:
  • Often run by individuals who may lack expertise in all functional areas (marketing, finance, HR, etc.).
  • Cannot afford professional managers.
• Labour:
  • Low wages lead to low productivity and high employee turnover.
  • Difficulty in attracting and retaining skilled labour.
  • Lack of resources for training and development.
• Marketing:
  • Face stiff competition from large enterprises and imported goods.
  • Lack resources for advertising and sales promotion.
  • Dependence on intermediaries who may exploit them.
  • Lack of market knowledge and research capabilities.
• Quality:
  • Difficulty in maintaining standardised quality due to lack of quality consciousness, resources, and standardised inputs.
  • Inability to afford certifications like ISO.
• Technology:
  • Use of outdated technology leads to low productivity and higher costs.
  • Lack awareness and resources to adopt modern technology.
• Capacity Utilisation:
  • Often operate below full capacity due to lack of demand, raw materials, power, or working capital.
• Sickness:
  • A large number of small units become 'sick' (unable to generate surplus or repay loans) due to internal (e.g., mismanagement) and external (e.g., lack of demand, power shortage) factors.
• Global Competition:
  • Face challenges from cheaper imports and multinational corporations due to liberalisation and globalisation.
  • Difficulty in meeting international quality standards.

6. Government Assistance to Small Industries / Businesses

The government provides support through various measures and institutions:

• Institutional Support:

  • Ministry of Micro, Small and Medium Enterprises (MSME): The nodal ministry for policy formulation and implementation.
  • National Small Industries Corporation (NSIC) (Established 1955):
    • Supplies imported machines and raw materials on easy hire-purchase terms.
    • Procures and supplies indigenous machinery.
    • Exports products of SSIs.
    • Provides mentoring, marketing assistance, and technology support.
    • Helps secure government tenders.
  • District Industries Centres (DICs) (Launched 1978):
    • Established at the district level to provide a focal point for promoting small, tiny, cottage, and village industries.
    • Offers services and support under a single roof.
    • Identifies potential entrepreneurs, assists in obtaining licenses, finance, raw materials, etc.
    • Acts as a link between entrepreneurs and developmental agencies.
  • Small Industries Development Bank of India (SIDBI): Principal financial institution for promotion, financing, and development of the MSME sector. (Though detailed functions might be beyond Class 11 scope, its existence is important).
  • Khadi and Village Industries Commission (KVIC): Focuses on promoting Khadi and village industries in rural areas.

• Incentives Offered: (Vary across states and schemes)

  • Land: Availability of developed plots, sometimes at concessional rates.
  • Power: Supply at concessional rates or exemptions from payment initially.
  • Water: Supply on a no-profit, no-loss basis or with subsidy.
  • Finance: Subsidies, grants, loans at concessional interest rates, seed capital assistance.
  • Taxation: Exemptions or concessions from taxes like sales tax (now GST) and income tax for specific periods (tax holidays).
  • Raw Materials: Assistance in procuring scarce raw materials through quotas or designated agencies.
  • Marketing Assistance: Help through government procurement programs, participation in trade fairs, export promotion schemes (via NSIC, etc.).
  • Technical Assistance & Training: Support for technology upgradation, skill development.

7. The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006

• This Act was a significant step towards recognizing the needs of the MSME sector.
• It provided the first-ever legal framework encompassing both manufacturing and service enterprises.
• It sought to facilitate the promotion, development, and competitiveness of MSMEs.
• (As mentioned earlier, this Act introduced definitions based on investment, and subsequent amendments have updated these definitions significantly, incorporating turnover as well. Be aware of this for current context).

Multiple Choice Questions (MCQs)

1. According to the traditional classification often cited in textbooks, what is the maximum investment limit in plant and machinery for a 'Micro Enterprise' in the manufacturing sector?
   a) ₹10 Lakh
   b) ₹25 Lakh
   c) ₹1 Crore
   d) ₹5 Crore

2. Which of the following is a key characteristic of Cottage Industries?
   a) High capital investment
   b) Use of sophisticated imported machinery
   c) Primarily use family labour and local resources
   d) Focus on export markets only

3. The District Industries Centres (DICs) were launched primarily to:
   a) Provide finance exclusively to large industries.
   b) Promote small, tiny, cottage, and village industries at the district level.
   c) Regulate the import of raw materials.
   d) Focus only on exporting goods from SSIs.

4. Which problem faced by small businesses relates to their difficulty in attracting and retaining skilled employees due to lower compensation packages?
   a) Problem of Finance
   b) Problem of Raw Materials
   c) Problem of Labour
   d) Problem of Marketing

5. Which institution specifically helps small businesses in procuring machinery (both indigenous and imported) on easy hire-purchase terms and assists in marketing?
   a) SIDBI
   b) DIC
   c) NSIC
   d) KVIC

6. Small businesses contribute significantly to 'Balanced Regional Development' mainly because they:
   a) Are mostly located in metropolitan cities.
   b) Use highly capital-intensive technology.
   c) Can be set up easily in rural and backward areas, promoting local development.
   d) Primarily focus on international collaborations.

7. An 'Ancillary Small Industrial Unit' is one which:
   a) Exports more than 50% of its production.
   b) Has an investment below ₹10 Lakh.
   c) Supplies at least 50% of its production to one or more parent units.
   d) Is located exclusively in a rural area.

8. Which of the following is NOT typically considered a major problem for small scale industries in India?
   a) Lack of adequate finance
   b) Difficulty in marketing products
   c) Shortage of unskilled labour
   d) Use of obsolete technology

9. Government incentives like 'tax holidays' for small businesses primarily aim to:
   a) Increase the cost of production.
   b) Reduce the financial burden in the initial years of operation.
   c) Discourage exports.
   d) Ensure procurement of low-quality raw materials.

10. The MSMED Act, 2006 was significant because it:
    a) Provided a legal framework covering both manufacturing and service enterprises for the first time.
    b) Abolished all small scale industries.
    c) Nationalised all small business units.
    d) Focused only on medium enterprises, excluding micro and small ones.

Answer Key for MCQs:

1. b) ₹25 Lakh
2. c) Primarily use family labour and local resources
3. b) Promote small, tiny, cottage, and village industries at the district level.
4. c) Problem of Labour
5. c) NSIC
6. c) Can be set up easily in rural and backward areas, promoting local development.
7. c) Supplies at least 50% of its production to one or more parent units.
8. c) Shortage of unskilled labour (Generally, the issue is retaining skilled labour or low productivity, not a shortage of unskilled labour itself).
9. b) Reduce the financial burden in the initial years of operation.
10. a) Provided a legal framework covering both manufacturing and service enterprises for the first time.

Remember to revise these points thoroughly. Understanding the role, challenges, and support systems for small businesses is essential for a comprehensive grasp of the Indian economy. Good luck with your preparation!