Small Business NCERT Solutions | Business Studies (BST) Class 11 - Commerce PDF Download

Very Short Answer Questions

Q1: Which year was the MSMED Act passed?
Ans: The MSMED Act was passed in the year 2006.

Q2: What is a micro-enterprise?
Ans: Micro-enterprises are businesses with a capital investment of less than Rs. 1 crore and a turnover of less than Rs. 5 crore.

Q3: What is a cottage industry?
Ans: A cottage industry is a small-scale, decentralized manufacturing enterprise that is often run from a home rather than a dedicated facility. The amount of capital necessary to start a cottage industry and the number of people employed characterize cottage industries.

Q4: What is meant by Village and Khadi Industry?
Ans: 

• Village Industries: Industries located in rural areas with investment in fixed assets as per the rules of the central government.
• Khadi Industries: Industries that produce handwoven fabrics from materials like cotton, wool, silk yarn, or a mixture of these yarns.

Together, Khadi and Village Industries are based in rural areas and have a fixed capital investment per artisan (weaver) of less than one lakh rupees. The Government of India reserves the right to amend the Fixed Capital Investment criteria whenever deemed necessary.

Q5: Give any two characteristics of entrepreneurship development.
Ans:

• Effective Time Management
• Visualizing Aim and Success
• Short Answer Questions

Short Answer Questions

• Micro-enterprises: Capital investment of less than Rs. 1 crore and turnover of less than Rs. 5 crore.
• Small enterprises: Capital investment of less than Rs. 10 crore and turnover of less than Rs. 50 crore.
• Medium enterprises: Capital investment of less than Rs. 50 crore and turnover of less than Rs. 250 crore.

Q2: State the meaning of entrepreneurship.
Ans: Entrepreneurship refers to individuals or groups who identify and exploit business opportunities by introducing a new product or process to the market or by significantly improving an existing product, service, or method of production.

Q3: MSME and Entrepreneurship are connected. Do you agree? Give two reasons.
Ans: Yes, MSME and Entrepreneurship are interconnected because:

• MSMEs provide funding assistance to entrepreneurs and promote skill enhancement through specialized training programs.
• MSMEs facilitate market access for entrepreneurs by enabling entry into both domestic and international markets.

Q4: State the role of MSME in the development of a country.
Ans: MSMEs contribute significantly to the overall industrial and economic development of the country through:

• Employment Opportunities: Being the second-largest employment provider after agriculture.
• Optimal Resource Utilization: Facilitating the use of locally available resources with simple technology.
• Encouraging Entrepreneurship: Inspiring local talent to create and innovate using their artistic and technical skills.
• Quick Decision-making: Due to their small size, they can make and implement decisions faster.
• Rural Development: Providing job opportunities and encouraging skills usage in rural areas.
• Balanced Development: Ensuring development across all regions by setting up business units that use local resources and technology.
• Poverty Elimination: Employing surplus rural labor and reducing hidden unemployment in agriculture.
• Economic Growth: Contributing significantly to GDP and exports.

Q5: What are the different parameters used to measure the size of MSME?
Ans: The size of MSME units is determined based on:

• Investment in plant and machinery.
• Turnover.
• The number of people employed in the enterprise.

Q6: State the meaning of Village and Khadi Industries.
Ans:

• Village Industries: Industries located in rural areas with investments in fixed assets as per central government rules.
• Khadi Industries: Industries producing handwoven fabrics from cotton, wool, silk yarn, or a mix of these materials.

Together, Khadi and Village Industries promote rural employment with a fixed capital investment per artisan (weaver) of less than one lakh rupees, as governed by the Khadi and Village Industries Commission (KVIC).

Q7: State any three major problems faced by MSMEs.
Ans: The major challenges faced by MSMEs are:

• Finance: Limited availability of working capital and difficulty in securing credit from banks.
• Raw Materials: Dependence on poor-quality raw materials or paying higher prices due to limited bargaining power.
• Managerial Skills: Lack of technical, managerial, and entrepreneurial expertise.

Long Answer Questions

• Economic Contribution: They account for 95% of the industrial units and contribute over 40% of the gross industrial value-added and 45% of total exports.
• Employment Generation: They provide extensive job opportunities, especially in rural areas, using labor-intensive techniques.
• Regional Growth: Promote balanced development by setting up industries in remote and less industrialized regions.
• Cost Efficiency: Utilize local resources and low overhead costs, making production affordable.
• Diverse Products: Produce a wide range of goods, including textiles, handicrafts, and consumer products.
• Social Impact: Enable income generation, reduce rural poverty, and foster community development.

Q2: Describe the role of small businesses in rural India.
Ans:The following are some of the most important functions that small businesses perform in rural India:

• Employment Opportunities: Cottage and rural industries are vital sources of employment, particularly for individuals living in rural areas. These industries significantly benefit economically disadvantaged sections of rural communities by providing them with job opportunities.
• Eliminate Poverty: Small-scale businesses use labor-intensive production techniques, enabling them to absorb surplus rural labor. By doing so, they reduce hidden unemployment in the agricultural sector and offer a steady income to rural residents, thereby alleviating rural poverty.
• Equitable Income Distribution: Due to minimal capital requirements and reliance on labor-intensive manufacturing methods, small-scale businesses encourage entrepreneurs to establish enterprises across the country. This helps create employment in rural areas and redistributes wealth and income, leading to a more equitable allocation of financial resources.
• Acceleration of Expansion: Small businesses have consistently served as key drivers of economic growth and significant sources of employment, fostering economic development and expansion in rural regions.

Q3: Discuss the problems faced by small-scale industries.
Ans: The following are some of the significant issues faced by small businesses in rural India:

• Finance: Small businesses often start with limited capital and lack the creditworthiness needed to secure funding from formal financial institutions. Consequently, they depend heavily on local financial sources and are frequently exploited by moneylenders. Additionally, delayed payments or cash tied up in unsold inventory lead to insufficient operating capital, further hampering their financial stability.
• Raw Materials: Access to raw materials is a major challenge. Small businesses often face difficulty sourcing essential materials, forcing them to compromise on quality or pay high prices for better supplies. Limited purchase volumes reduce their bargaining power, and a lack of storage space prevents them from buying in bulk, adding to their struggles.
• Management Skills: Most small businesses are run by lone entrepreneurs who may lack comprehensive managerial expertise. While they often possess technical knowledge, they struggle with marketing and managing multiple business tasks simultaneously. Financial constraints also prevent them from hiring skilled management professionals.
• Labour: Small businesses cannot afford to offer competitive wages, leading to low employee morale and productivity. This results in poor output per worker and high employee turnover, further complicating operations.
• Capacity Utilization: A lack of marketing skills or demand forces many small businesses to operate below full capacity. This inefficiency increases operational costs, which can eventually lead to sickness or business closure.
• Technology: Small businesses frequently rely on outdated or obsolete technology, leading to low productivity and inadequate output, making it difficult for them to compete effectively.
• Quality: Traditional production methods often result in inconsistent or substandard quality, making it challenging to meet market expectations or compete with larger firms.
• Global Competition: Small businesses face tough competition from large-scale industries and multinational companies, which often have access to superior resources, advanced technology, and wider markets.

Q4: What measures has the government taken to solve the problem of finance and marketing in the small-scale sector?
Ans: In India, the small-scale sector has been pivotal in fostering job creation, promoting regional development, and boosting export activities. Recognizing the barriers of insufficient financing and ineffective market access, the Indian government has implemented several measures to address these challenges. Below are the key agencies and initiatives established to support the small-scale sector:

Key Agencies Supporting Small-Scale Businesses

1. National Bank for Agriculture and Rural Development (NABARD):
   Established in 1982, NABARD's primary objective is to promote rural development and coordinate activities in this area. It serves as the apex banking institution supervising rural and 'Gramin' banks, offering low-cost and accessible financing to small, cottage, and rural industries.

2. Small Industries Development Bank of India (SIDBI):
   SIDBI was set up to provide direct and indirect financial support through various schemes and initiatives. It focuses on addressing the credit and financial needs of small and medium-sized enterprises (SMEs).

3. World Association for Small and Medium Enterprises (WASME):
   WASME is an international non-governmental organization that supports SMEs in overcoming challenges. It established the 'International Committee for Rural Industrialisation' to create models for rural industry growth and development.

4. National Commission for Enterprises in the Unorganised Sector (NCEUS):
   Created in September 2004, NCEUS aims to improve the efficiency and global competitiveness of small-scale businesses, particularly those in the unorganized or informal sector. It addresses specific challenges faced by these enterprises.

Job Creation and Rural Development Programmes:
In addition to these agencies, the government has initiated several rural development schemes aimed at creating employment opportunities and empowering rural communities. Notable programs include:

• Prime Minister's Rozgar Yojana (PMRY): Focused on providing self-employment opportunities to the unemployed youth in rural areas.
• Integrated Rural Development Programme (IRDP): Aims to promote sustainable development in rural regions through asset distribution and skill development.
• Training of Rural Youth for Self-Employment (TRYSEM): Targets skill enhancement among rural youth, enabling them to undertake self-employment ventures.

These agencies and programs collectively contribute to enhancing the role of the small-scale sector in driving India's socio-economic growth and addressing rural unemployment.

Q5: 'Innovation is integral to MSME.' Discuss giving reasons.
Ans: Innovation drives the economy forward. Rapid advancements in technology have become pivotal across various sectors, including agriculture, manufacturing, and services, significantly influencing enterprises' contribution to national economic development and global expansion.
In a rapidly changing world, firms must remain competitive through continuous innovation. This includes introducing new technologies to enhance quality standards and developing the necessary infrastructural support. To facilitate technological advancement, efforts have been made to establish laboratories, technological centers, and incubation units to help businesses improve their tools and machinery.

Role of Infrastructure and Business Incubators:

• Modernizing technology requires strong infrastructure support to generate novel ideas that benefit not just MSMEs but also the broader industrial ecosystem. Business incubators play a crucial role in helping entrepreneurs commercialize their ideas, transforming concepts into profitable ventures that create employment opportunities.

Ministry of MSME Initiatives:
The Ministry of MSME actively supports creativity and technological innovation by:

• Encouraging individuals to adopt advanced manufacturing technologies.
• Promoting knowledge-based ventures and innovative MSMEs.

To achieve these goals, the Ministry has established 18 Technology Centers (TCs) across the country. Previously referred to as Tool Rooms (10) and Technology Development Centers (8), these TCs are designed to:

• Provide MSMEs with access to modern technology.
• Offer technical advisory support.
• Train skilled labor for various levels, from school dropouts to graduates and engineers.

To further extend the reach of these facilities, the Ministry has initiated the construction of 15 new Technology Centers in different locations across India.

Technology Centers and Their Importance:
The Technology Centers significantly support MSMEs by:

• Enhancing access to state-of-the-art technology.
• Offering skill development programs for youth at various educational levels.
• Assisting businesses in remaining competitive in the market.

Importance of Simplicity in Innovation:

• Effective innovations stem from thinking differently and creating solutions that are straightforward, uncomplicated, and focused on specific operations. Such technologies or inventions should be simple enough for the general public to understand, ensuring widespread adoption and impact. Unique ideas, coupled with the determination to implement them, are the driving forces behind exceptional success.
• The Ministry of MSME continues to support inventors and businesses, encouraging them to pursue their aspirations of creating new and beneficial technologies and solutions. This proactive approach fosters an environment where innovation thrives, ultimately propelling the nation's industrial and economic growth.

Q6: 'Creativity and Innovation are the key to MSME.' Justify the statement.
Ans: The reasons that justify the statement "Creativity and Innovation is the key to MSME" are as follows:

• Modernizing Technology: Infrastructure support is essential to enable businesses to develop novel concepts that benefit not only MSMEs but also the entire industrial ecosystem.
• Encouraging Latent Creativity: The Ministry of MSME's initiatives are aimed at fostering individuals' latent creativity and encouraging the adoption of advanced manufacturing technologies and knowledge-based innovative MSMEs or ventures.
• Role of Technology Centers: Technology Centers play a vital role in corporate development by providing access to modern tools and supporting MSMEs in enhancing their competitive edge.
• Main Objective of the Scheme: The primary goal of the scheme is to nurture creativity and innovation by adopting cutting-edge technologies and supporting knowledge-based MSMEs.
• Comprehensive Support: The plan includes mentoring in business and technology, networking with other firms, seed financial aid, and professional assistance to help businesses succeed and grow.
• Empowering Technology-Based Startups: Technology-based startups, often considered high-risk and high-growth ventures, require a supportive environment like Business Incubators (BIs) to increase their chances of success.

Thus, creativity and innovation are critical to the development and sustainability of MSMEs, ensuring their growth, competitiveness, and significant contribution to the industrial system.