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Short Questions :
Short Answer Questions
Question 1 : What are the different parameters used to measure the size of the business?
Answer : The following are the various parameters that are used to measure the size of a business.
(a) Number of people hired in the business
(b) Amount of capital invested in the business
(c) Volume or value or units of output produced by the business
(d) Power consumption by the business in carrying out its activities
Question 2: What is the definition used by Government of India for small scale industries?
Answer : The Government of India classifies an industry as a small scale industry on the basis of the level of investment made in it. Industries where the amount invested in the fixed assets (particularly plant and machinery) is less than Rs. 1 crore are regarded as small-scale industries. However, export-oriented units that use modern production techniques are considered as small-scale industries if their investment does not exceed Rs. 5 crore.
Question 3: How would you differentiate between an ancillary and a tiny unit?
Answer :Question 4: State the features of cottage industries.
Answer : The following are a few important features of cottage industries.
(a) Ownership: These are rural-based industries owned and operated by individuals who invest their private resources in these units.
(b) Employment: These industries generally do not hire labour but employ the owners’ family members.
(c) Talent and skills: Usually, the talent and the skills required for cottage industries are found restricted to particular families. The skills are passed on from one generation to the next. For instance, the art of pottery remains restricted to potter families.
(d) Level of capital and production techniques: The amount of capital is very small, and the production techniques are highly labour-intensive and indigenous.
(e) Market: Although the production is primarily carried out for self-consumption, a portion of the output is sold in the local market as well.
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Long Questions :
Question 1: How do small scale industries contribute to the socio-economic development of India?
Answer : Small-scale industries (SSIs) play an important role in ensuring the progress of developing countries such as India. The following points highlight their contribution.
(a) Market share: SSIs make up 95 percent of the industrial units in India. They contribute about 40 percent of the ‘gross industrial value added’ and 45 percent of India’s total exports.
(b) Employment generation: As SSIs use labour-intensive production techniques, they have a greater employment generation potential than large industries. Moreover, the skills required to perform jobs in SSIs are usually not very specific, which further increases their scope for generating employment.
(c) Wide range of products: Small-scale units produce a large variety of consumer products, such as stationery items, safety matches, handicrafts, vegetables and processed food. Besides, SSIs also produce a few items by using technology, such as calculators, televisions and engineering goods.
(d) Regional balance: SSIs produce simple products and use basic technology. In addition, these industries do not require heavy capital investment, and therefore, they can be set up by anyone anywhere across a country. Small units not only benefit the particular region where it is established but also help reduce the regional disparities in industrial development among different regions of a country.
(e) Customised goods: Small industrial units adapt perfectly to specific needs of consumers. As SSIs use simple and highly flexible production techniques, they can provide their customers with goods best suited to the customers’ tastes and preferences.
Question 2: Describe the role of small business in rural India.
Answer : The following are some of the major roles played by small-scale businesses in rural India.
(a) They generate employment opportunities: Cottage and rural industries play a significant role in providing employment opportunities, particularly to people in rural areas. This proves to be a boon especially for the economically weaker sections of the rural society.
(b) They mitigate disguised unemployment and alleviate poverty: Small-scale businesses use labour-intensive production techniques, and are, therefore, able to provide employment to the excess/surplus rural labour. Thus, small-scale businesses remove disguised unemployment from the agriculture sector and at the same time provide livelihood to the rural people. Hence, they contribute to alleviating rural poverty.
(c) They enable equitable income distribution: The capital requirements of small-scale businesses are low, mainly because of their use of labour-intensive production techniques, and this encourages entrepreneurs to start units on a small scale. Small-scale businesses are, therefore, set up all over the country, many of them providing employment opportunities to people in rural areas. This triggers the redistribution of wealth and income, and enables the equitable distribution of income in rural areas.
(d) They help accelerate growth: Small-scale businesses have been considered as a major propeller for the acceleration of economic growth and as an employment generator, particularly in the rural and backward areas of India.
(e) They facilitate rural development and reduce migration from rural to urban areas: It is well known that a large number of people migrate from rural to urban areas in search of better employment opportunities and improved living standards. Small-scale businesses help reduce this migration by providing employment opportunities to rural people in their own regions. By doing so, small units also help mitigate the excessive pressure on urban infrastructure.
Question 3: Discuss the problems faced by small scale industries.
Answer : The following are the major problems faced by small-scale industries (SSIs) in India.
(a) Inadequate finance and credit: The SSIs have always faced the problem of inadequate finance and credit. This is partly because of the scarcity of capital available with the entrepreneurs in the sector and partly because of their lack of assets for offering as collateral/mortgage to secure bank loans. As a result, these businesses have to rely on local financial resources and moneylenders for funds.
(b) Problem of procuring raw materials: Due to inadequate finance and credit, SSIs face a shortage of funds for procuring raw materials and for carrying out their day-to-day business activities. In addition, the poor transportation system and the faulty supply mechanism often result in irregular supply of raw materials. For these reasons, SSIs face a severe shortage of raw materials, which hinders their smooth functioning.
(c) Lack of skilled labour: As SSIs cannot afford to pay high salaries to their employees, they usually employ semi-skilled or unskilled labourers. Hence, they face a lack of skilled and talented manpower, which adversely affects their efficiency.
(d) Marketing: Efficient systems for marketing and promoting products have remained an unfulfilled dream of small-scale industries. The main reason is the shortage of funds. Because of the lack of efficient marketing systems, small units are forced to sell their products in the markets through the middlemen, which further leads to the exploitation of the small scale entrepreneurs.
(e) Obsolete/outdated technology: Many small-scale industries use production techniques which are outdated and obsolete. This lowers their productivity and makes their operations unfeasible.
Question 4: What measures has the government taken to solve the problems of finance and marketing in the small scale sector?
Answer : The small-scale sector has played a major role in employment generation, regional development and export promotion in India. The Government of India has realised that a lot more can be achieved if the two major bottlenecks that affect the further development of SSIs—inadequate funds and inefficient market penetration—are removed. In pursuit of this objective, the government has established the following agencies.
(a) National Bank for Agriculture and Rural Development (NABARD): Itwas established in 1982 with the main objective of promoting rural development and integrating the efforts in this direction. This agency is an apex banking body that governs the operations particularly of the rural and ‘gramin’ banks. The main focus of NABARD is to provide cheap and easy credit facility to small, cottage and rural industries.
(b) Small Industries Development Bank of India (SIDBI): It was set up to provide direct and indirect financial assistance under different schemes. It caters to the credit and finance requirements of especially small-scale enterprises.
(c) World Association for Small and Medium Enterprises (WASME): It is an international non-governmental organisation that addresses the problems of small- and medium-scale enterprises. It has set up an ‘International Committee for Rural Industrialisation’ with the aim of designing a model for the growth and development of rural industries.
(d) The National Commission for Enterprises in the Unorganised Sector (NCEUS): It was formed in September 2004 with the objective of improving the efficiency and enhancing the global competitiveness of small-scale industries. It focuses on addressing the problems faced by small enterprises, particularly in the unorganised/informal sector.
(e) Various development and employment generation programmes : Besides establishing the organisations mentioned above, the government has launched various programmes for rural development. Among the important programmes are the Prime Minister’s Rozgar Yojana (PMRY), Integrated Rural Development Programme (IRDP) and Training of Rural Youth for Self-Employment (TRYSEM). These programmes are aimed at generating greater employment opportunities, developing rural areas and making the rural people self-reliant.
Question 5: What are the incentives provided by the government for industries in backward and hilly areas?
Answer : It is quite lucrative and feasible for entrepreneurs to establish industries in metropolitan and other developed cities. However, because of numerous factors such as irregular power supply, poor transport and absence of banking facilitates, it is extremely difficult for them to set up industries in backward, hilly and tribal areas. As a result, there exist acute regional disparities in development between these areas and the big cities in the country. The Government of India has been making efforts to remove the regional imbalances in development by providing incentives for setting up industries in rural areas. The following are among the incentives offered.
(a) Land: It is a basic requirement for setting up a business unit. In order to encourage the establishment of industries in backward areas, the government provides land plots at concessional rates, especially to industrialists in backward regions. This makes setting-up industries cheaper.
(b) Power: Power is an essential requirement for the functioning of business enterprises. However, its supply is highly irregular in some parts of India. Therefore, in order to facilitate the setting up of industries in these areas, electricity is supplied at a discounted rate of 50 percent. In addition, some states exempt such units from any payment during the initial years of operation.
(c) Banking and finance: Due to the poor banking facilities, industries set up in the backward areas face the problem of inadequate credit and finance. As a solution, the government provides loans at a concessional rate and offers subsidies of 10 to 15 per cent for the accumulation of capital assets.
(d) Raw materials: Resources such as cement, iron and steel are of prime importance for industries. Since these resources are scarce, the government provides them on priority basis to industries located in backward areas.
(e) Tax exemption-In order to attract entrepreneurs to set up industries in the backward areas, different state governments grant tax exemption to the industries. Thus, the industries are exempted from paying taxes for 5 to 10 years.