Business Studies 6 Marks Question

(a) Yes.
(b) Intellectual Property Rights.
(c) Significance of Intellectual Property:
(i) Encourages creation of new, path breaking inventions.
(ii) Incentivises inventors, authors, creators, etc., for their work.
(iii) Helps in the prevention of loss of income.
(iv) Helps authors, developers and owners to get recognition for their works.

(a) Small manufacturing enterprise.
(b) Cheap price of land and labour.
(c) Equity share Capital and Loans from Bank.
(d) Balanced Regional Development and Employment Generation.

The four problems faced by small scale industry of Sheela are:
(i) Non-availability of adequate finance to carry out its operations.
Lines: "But the problem with her business was that it had a small capital base."
(ii) Lower remuneration offered, attracting talented people is a major problem. Lines: "She could not afford to pay higher salaries to the employees, which affected their willingness to work and produce more."
(iii) Marketing is a weaker area of small organisations.
Lines: "She had sound technical knowledge but was not successful in marketing the output."
(iv) Small business firms have to operate below full capacity due to which their operating costs tend to increase.
Lines: "Due to limited demand for her handicraft items, the business firm has to operate below full capacity leading to increase in operating expenses."

(a) A forty five years old woman Lalmuni Devi from Bihar was a daily wage labourer, then she decided to transform herself by starting mushroom farming. This step proved an inspirational step and she was among the top 25 farmers in Asia by Mexican website.
(b) Lalmuni efforts have paved the way for others. Similarly, we can also become an entrepreneur and for that we should have following qualities:
(i) Initiate the business.
(ii) Grab the opportunities.
(iii) High quality work.
(iv) Efficiency.
(v) Risk taking abilities.
(vi) Concern for employee's welfare.
(c) Lalmuni have following qualities:
(i) She recognised the opportunity and grab it.
(ii) She managed efficiently and effectively,
(iii) She was a chaser and faced the difficulty,
(iv) She was self-confident.
(v) She took required steps to solve the problems.

Small scale units are exposed to numerous problems. Major problems faced by these units are concerned with raw material, labour, finance and marketing. Problem of marketing is more complicated in case of small scale industries. These units are in no position to face the onslaught of large scale limits i.e., quantity, quality and cost and at the same time are not in a position to assess the prevailing market scenario or changes which are taking place with respect to tastes, liking, disliking, competition, technology etc. Moreover these units do not possess the requisite expertise to adjust their operations according to the changed situation.

1. Problem of Standardization: Small scale units face problems with respect to fixing the standards and sticking. This results in the poor quality of their products and it adversely affects their image (or) goodwill in the market.
2. Competition from Large Scale Units: Small scale units are ill equipped to face competition from large scale units with respect to quantity, quality and cost. In the modern competitive world there is survival of the fittest, even the existence of small scale units is endangered.
3. Poor Sale Promotion: Small scale units have limited financial resources and hence, cannot afford to spend more on sales promotion. These units are not having any standard brand name under which they can sell their products. Various channel members try to exploit them because of the lack of goodwill of their products in the market.
4. Poor Bargaining Power: Due to limited resources and lower scale of operations small scale units are in a weak position while negotiating with the suppliers of rawmaterial, finances (or) marketing agencies. They are always at the receiving end and as such are not in a position to safeguard their interests.

Small Industries Development Bank of India (SIDBI), was set up on April 2, 1990 under an Act of Indian Parliament, is the principal financial institution for the promotion, financing and development of the Micro, Small and Medium Enterprise (MSME) sectors and for co-ordination of the functions of the institutions engaged in similar activities.
Financial support is provided by way of refinance to eligible Primary Lending Institutions (PLIS) such as banks, State Financial Corporations (SFCs), State Industrial Development Corporations (SIDCs), State Small Industries Development Corporations (SSIDCs) etc. for onward lending to MSMEs, financial assistance in the form of loans, grants, equity and quasi-equity to Non Government Organisations (NGOs)/ Micro Finance Institutions (MFIs) for onlending to micro enterprises and economically weaker sections of society, enabling them to take up income generating activities on a sustainable basis and direct assistance to MSMEs which is channelised through the bank's network of 130 branch offices.
While finance is the basic need of the MSMEs, they also require different noncredit facilities to gain the extra mile in their endeavour to attain international competitiveness. Such requirements are equity capital, credit rating. technology transfer and upgradation, etc. SIDBI has been constantly working on building various institutional mechanisms to cater to the emerging needs of the MSME sector and has set-up various subsidiaries/ associates viz.
SIDBI Venture Capital Ltd. (SVCL) is a subsidiary of SIDBI. It was set up in July, 1999. It is an asset management company, presently managing two venture capital funds. Credit Guarantee Fund Trust for Micro and Small Enterprises (CGFTMSE) in July 2000 by Government of India and SIDBI, to provide credit guarantee support to collateral free/ third-party guarantee free loans extended by banks and lending institutions for micro and small enterprises (MSEs)
SME Rating Agency of India Ltd. (SMERA) was set up in September 2005, as an MSME dedicated third-party rating agency to provide comprehensive, transparent and reliable ratings and risk profiling. India SME Technology Services Limited (ISTSL), was set up in November 2005. It provides a platform for MSMEs to tap opportunities at the global level for acquisition of modern technologies.
India SME Asset Reconstruction Company Ltd (ISARC) is the country's first MSME focused asset reconstruction company striving for speedy resolution of non-performing assets (NPA) by unlocking the idle NPAs for productive purposes which would facilitate greater and easier flow of credit from the banking sector to the MSMEs.

Yes, it is absolutely correct to say that path of SSI is full of hurdles. The following are the major problems faced by Small Scale Industries (SSIS) in India.

1. 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.
2. 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.
3. 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 lack of skilled and talented manpower, which adversely affects their efficiency.
4. 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.
5. Obsolete/ outdated technology: Many small-scale industries use production techniques which are outdated and obsolete. This lowers their productivity and makes their operations unfeasible.

Present time is the time of WTO. India is a founder member of WTO. Therefore, it is bound to open its economy for the global producers. As new giant scale MNCs enters the market, it becomes must for them to steadily re-orient themselves to face the challenges coming from increased competition. Certainly competition will increase for them. In these situations the mantra of success will be "Think global and act local"

1. They need to bring dynamism, flexibility, innovative entrepreneurial spirit, small businesses need to modify themselves as per the changing needs of market driven economy.
2. Government also needs to change its role from a regulator to facilitator and promoter.
3. New strategies have to be found to increase partnership between large and small industries.
4. In order to maintain their market share and healthy growth, SSIs need to create a level playing field for themselves.
5. They will be able to compete in this global scenario if they learn to manage, adopt and improve their competitive strength.

Following Measures have been taken by the government to solve the problem of finance in small scale sector:

1. Small Industries Development Bank of India (SIDBI): It was set up on April 2, 1990 under an Act of Indian Parliament, is the principal financial institution for the promotion, financing and development of the Micro, Small and Medium Enterprise (MSME) sector and for coordination of the functions of the institutions engaged in similar activities.

Financial support is provided by way of refinance to eligible Primary Lending Institutions (PLIS) such as banks, State Financial Corporations (SFCs), State Industrial Development Corporations (SIDCs), State Small Industries Development Corporations (SSIDCs) etc. for onward lending to MSMEs, financial assistance in the form of loans, grants, equity and quasi-equity to Non Government Organisations/ Micro Finance Institutions (MFIs) for on-lending to micro enterprises and economically weaker sections of society, enabling them to take up income generating activities on a sustainable basis and direct assistance to MSMEs which is channelised through the bank's network of 130 branch offices.

2. The National Commission for Enterprises in the Unorganised Sector (NCEUS): It was established by the Government of India as an advisory body on the informal sector to bring about improvement in the productivity of informal enterprises for generation of large scale employment opportunities on a sustainable basis, particularly in the rural areas. The Commission was mandated to recommend appropriate measures to enhance the competitiveness of the informal sector in the global economy and to link the sector with the institutional framework in areas such as credit, raw material, infrastructure, technology upgradation skill development, and marketing.

I would remember following features of small scale industries that would also help me in recognising it:

1. Personal Character: Small scale unit is generally owned and managed by a single entrepreneur. Thus, personal character is a main feature of this enterprise.
2. Limited Investment: A small scale enterprise requires less capital investment because it does not employ highly mechanised means of production.
3. Limited Area of Operation: A small scale enterprise generally operates in a compact area but can export the products all over the world.
4. Located in Rural and Semi-Urban Areas: Most of the small scale enterprises are located in rural or semi-urban areas, due to easy availability of labour.
5. Independent Management: Small scale enterprises are generally managed by the owners only. So, there is the advantage of direct motivation, personal care, secrecy, flexibility, sound judgement, etc.

Role of small scale industries:

1. Contribution in industrial production.
2. Employment creation.
3. Contribution to export.
4. The same distribution of income and prosperity.

Hurdles it faces: Small scale industries in India can't progress satisfactorily due to various problems likely confronted with while operating enterprises. In spite of needing huge potentialities, the major problems, small industries face are given below.

1. Problem associated with Skilled Manpower: The success of your small enterprise revolves about the entrepreneur and its personnel, provided the employees tend to be skilled and efficient. Because inefficient human element and unskilled manpower create innumerable problems for your survival of small companies. Non-availability of adequate skilled manpower in the rural sector poses trouble to small scale industries.
2. Inadequate Credit Assistance: Adequate and timely supply of credit facilities is an important problem faced by small-scale companies. This is partly because of scarcity of capital and partly because of weak credit worthiness of the small units near you.
3. Irregular Supply Associated with Raw Material: Small units face severe problems in procuring the recyclables whether they use locally available recyclables or imported raw products. The problems arise because of faulty and irregular supply of raw materials. Non-availability of sufficient variety of raw materials, sometimes poor quality of raw materials, increased cost of recyclables, foreign exchange crisis and most importantly lack of knowledge associated with entrepreneurs regarding Government insurance policy are other few hindrances regarding small-scale sector.
4. Trouble of Marketing: Another important problem confronted by small-scale units may be the absence of organized marketing system. Due to lack of organized marketing, their products compare unfavorably with the grade of the product of large-level units. They are also not able to get adequate information with regards to consumer's choice, taste and preferences of the kind of product. The above problems do not let them to stay out there.
5. Lack of Equipment: Small-scale units are striving hard to use modern machines and equipment in their process of production so that you can compete with large companies. Most of the little units employ outdated and also traditional technology and products. Lack of appropriate technology and equipment create a major stumbling block for your growth of small-scale companies.
6. Absence of Ample Infrastructure: Indian economy is seen as an inadequate infrastructure which is a major problem for small units growing. Most of the little units and industrial estates found in towns and cities are having a number of problems like lack of power supply, water and drainage trouble, poor roads, raw products and marketing problem. Thus lack of adequate infrastructure adversely affects the product quality, quantity and production schedule in the enterprises which ultimately ends up with under utilization of capacity.
7. Rivalry from Large Scale Units and also Imported Articles: Small-scale units still find it very difficult to contend with the product of large-scale units and imported articles that are comparatively very cheap and also of better quality compared to small units product.

Start-up India initiative talk only about new start-ups which must be working towards innovation, development of new product or services. It is launched with its complete action plan on 16th January, 2016. Under this scheme, government wants to accelerate start-up movement from digital/ technology sector to agriculture manufacturing, social education, healthcare, etc.
Benefits Provided by Governemnt to New Start-ups:

1. Easy process of registration.
2. Self-certification facilities.
3. No Income Tax for 3 year.
4. Research.
5. Easy winding up.
6. Start-up India hub.
7. Credit guarantee fund for start-ups.

Ways to Fund Start-ups:

1. Bootstrapping It is self-funding of entrepreneurs.
2. Bank Loan It is popular traditional way of funding.
3. Government Programmes MUDRA is popular scheme for new start-ups.
4. Crowd Funding It is raised through social networking sites.
5. Venture Capital This types of funding is often obtained in exchange for an equity stake in business.
6. Incubators They are providing professional services including funding to new start-ups.
7. Winning Contest It encourages entrepreneurs to setup new start-ups.

e.g. NASCOM’S 10000 start-ups.

Entrepreneurship Development is process which emphasises on training, education, reorientation and creation of conductive and healthy environment for the growth of enterprises.
Role/ Importance of Entrepreneurship Development in India It can help India in the following ways:

1. Eliminates Poverty and Unemployment: The basic problem of India is poverty and unemployment entrepreneurship development can help the unempolyed youth to opt for at risps or self-employment and entrepreneurial as a career.
2. Capital Formation: The various development bank like IDBI, IFCI, SIDBI take initiative in promoting entrepreneurship through fund. Entrepreneurship development encourage the establishment of new industries in economy which is cause of to go capital formation.
3. Improvement in Per Capita: Income Entrepreneurship development encourages new startups which is big cause of increase in per capita income of India.
4. Defuses Social Tension: Entrepreneurship development can help channelising the talent and energies of frustrated unemployed youth of India. In other words, it can raise harmony within society.
5. Discovering New Markets: It helps the entrepreneurs in discovering new market in country and outside country.
6. Helpful in Selection of Project and Product: It helps entrepreneurs in evaluating various project and product and choose the most suitable one which can be established and started easily, gives maximum profit with least possible risk and which have scope for further development.

In most of the developing countries like India, Small Scale Industries (SSI) constitute an important and crucial segment of the industrial sector. They play an important role in employment creation, resource utilisation and income generation and helping to promote changes in a gradual and phased manner. They have been given an important place in the framework of Indian planning since beginning both for economic and ideological reasons. The reasons are obvious.
The scarcity of capital in India severely limits the number of non-farm jobs that can be created because investment costs per job are high in large and medium industries. An effective development policy has to attempt to increase the use of labour, relative to capital to the extent that it is economically efficient.
Small Scale Enterprises are generally more labour intensive than larger organisations. As a matter of fact, small scale sector has now emerged as a dynamic and vibrant sector for the Indian economy in recent years. It has attracted so much attention not only from industrial planners and economists but also from sociologists, administrators and politicians.
Scope of Small Scale Industry:
Defining small scale industry is a difficult task because the definition of small scale industry varies from country to country and from one time to the another in the same country depending upon the pattern and stage of development, government policy and administrative set up of the particular country.
Every country has set its own parameters in defining small scale sector. Generally, small scale sector is defined in terms of investment ceilings on the original value of the installed plant and machinery. But in the earlier times the definition was based on employment. In the Indian context, the parameter are as follows.
The Fiscal Commission, Government of India, New Delhi, 1950, for the first time defined a small-scale industry as, one which is operated mainly with hired labour usually 10 to 50 hands.
Fixed capital investment in a unit has also been adopted as the other criteria to make a distinction between small scale and large-scale industries. This limit is being continuously raised upwards by Government.
The Small Scale Industries Board in 1955 defined, "Small-scale industry as a unit employing less than 50 employees if using power and less than 100 employees if not using power and with a capital asset not exceeding ₹ 5 lakhs".
"The initial capital investment of ₹ 5 lakhs has been changed to ₹ 10 lakhs for small industries and ₹ 15 lakhs for ancillaries in 1975. Again this fixed capital investment limit was raised to ₹ 15 lakhs for small units and ₹ 20 lakhs for ancillary units in 1980. The Government of India in 1985, has further increased the investment limit to ₹ 35 lakhs for small-scale units and ₹ 45 lakhs for ancillary units.
Again the new Industrial Policy in 1991, raised the investment ceilings in plant an machinery to ₹ 60 lakhs for small-scale units and ₹ 75 lakhs for ancillary units.
As per the Abid Hussain Committee's recommendations on small scale industry, the Government of India has, in March 1997 further raised investment ceilings to 3 crores for small-scale and ancillary industries and to ₹ 50 lakhs for tiny industry.
The new policy initiatives in 1999-2000 defined small-scale industry as a unit engaged in manufacturing, repairing, processing and preservation of goods having investment in plant and machinery at an original cost not exceeding ₹ 100 lakhs.
In case of tiny units, the cost limitation is up to ₹ 5 lakhs. Again, the Government of India in its budget for 2007-08 has raised the investment limit in plant and machinery of small-scale industries to ₹ 1.5 crores. An ancillary unit is one which is engaged or proposed to be engaged in the manufacture of production of parts, components, sub-assemblies, tooling or intermediaries or rendering services and the undertaking supplies or renders or proposes to supply or render not less than 50% of its production or services, as the case may be, to one or more other industries undertakings and whose investment in fixed assets in plant and machinery whether held on ownership terms or lease or on hire purchase does not exceed ₹ 75 lakhs.
For small-scale industries, the Planning Commission of India uses terms 'village and small scale industries'. These include modern small-scale industry and the traditional cottage and household industry.

Small Scale Industry (SSI) is an industrial undertaking in which investedin fixwd assets in plants and machinery, whether held on ownership term or on lease or hire purchase, does not exeed ₹ 1 crore. However this investment limits is varied by the government from time to time.
Entrepreneurs in small scale sector are normally not required to obtain a license from the Central Government or the State Government for setting up units part of the country. Registration of a small scale unit is also not compulsory. But its registration with the State Directorate or Commissioner of Industries or 's makes the unit eligible for availing different types of Government assistance financial assistance from the Department of Industries, medium and long term s from State Financial Corporations and other Commercial Banks, machinery on se basis from the National Small Industries Corporation, etc. Registration is an essential requirement for getting benefits of special schemes for promotion of viz. Credit Guarantee Scheme, Capital subsidy, Reduced custom duty on selected items, ISO-9000 Certification reimbursement and several other benefits provided by state government.

1. The Ministry of Micro, Small and Medium Enterprises acts as the nodal agency for growth and development of SSIs in the country. The ministry formulates and implements policies and programmes in order to promote small scale industries and nhance their competitiveness.

It is assisted by various public sector enterprises like:

1. Small Industry Development Organisation (SIDO) is the apex body for assisting the Government in formulating and overseeing the implementation of its policies and programmes/ projects/ schemes.
2. National Small Industries Corporation Led (NSIC) was established by the Government with a view to promoting, aiding and fostering the growth of SSI in the country, with focus on commercial aspects of their operation
3. The Ministry has established three National Entrepreneurship Development: Institutes which are engaged in development of training modules, undertaking research and training and providing consultancy services for entrepreneurship development in the SSI sector.

These are:

• National Institute of Small Industry Extension Training (NISIET) at Hyderabad, National Institute of Entrepreneurship and Small Business Development (NIESBUD) at NOIDA.
• Indian Institute of Entrepreneurship (IIE) at Guwahati.

2. The National Commission for Enterprises in the Unorganised Sector (NCEUS) has been constituted with the mandate to examine the problems of enterprises in the unorganised sector and suggest measures to overcome them.
3. Small Industries Development Bank of India (SIDBI) acts as apex institution for financing SSIs through various credit schemes.

Small scale industries in India could not progress satisfactorily due to various problems that they are confronted with while running enterprises. In spite of having huge potentialities, the major problems, small industries face are given below.

1. Problem of skilled manpower: The success of a small enterprise revolves around the entrepreneur and its employees, provided the employees are skilled and efficient. Because inefficient human factor and unskilled manpower create innumerable problems for the survival of small industries. Non-availability of adequate skilled manpower in the rural sector poses problem to small-scale industries.
2. Inadequate Credit Assistance: Adequate and timely supply of credit facilities is an important problem faced by small-scale industries. This is partly due to scarcity of capital and partly due to weak creditworthiness of the small units in the country.
3. Irregular Supply of Raw Material: Small units face severe problems in procuring the raw materials whether they use locally available raw materials or imported raw materials. The problems arise due to faulty and irregular supply of raw materials. Non-availability of sufficient quantity of raw materials, sometimes poor quality of raw materials, increased cost of raw materials, foreign exchange crisis and above all lack of knowledge of entrepreneurs regarding government policy are other few hindrances for small-scale sector.
4. Absence of Organized Marketing: Another important problem faced by small scale units is the absence of organized marketing system. In the absence of organized marketing, their products compare unfavorably with the quality of the product of large-scale units. They also fail to get adequate information about consumer's choice, taste and preferences of the type of product. The above problems do not allow them to stay in the market.
5. Lack of Machinery and Equipment: Small-scale units are striving hard to employ modern machineries and equipment in their process of production in order to compete with large industries. Most of the small units employ outdated and traditional technology and equipment. Lack of appropriate technology and equipment create a major stumbling block for the growth of small-scale industries.
6. Absence of Adequate Infrastructure: Indian economy is characterized by inadequate infrastructure which is a major problem for small units to grow. Most of the small units and industrial estates found in towns and cities are having one or more problems like lack of power supply, water and drainage problem, poor roads, raw materials and marketing problem. Thus absence of adequate infrastructure adversely affects the quality, quantity and production schedule of the enterprises which ultimately results in under-utilization of capacity.
7. Competition from Large-scale Units and Imported Articles: Small-scale units find it very difficult to compete with the product of large-scale units and imported articles which are comparatively very cheap and of better quality than small units product.
8. Other Problems: Besides the above problems, small-scale units have been constrained by a number of other problems also. They include poor project planning, managerial inadequacies, old and orthodox designs, high degree of obsolescence and huge number of bogus concerns. Due to all these problems the development of small-scale industries could not reach a prestigious stage.

In a developing country like India, the role and importance of small-scale industries is very significant towards poverty eradication, employment generation, rural development and creating regional balance in promotion and growth of various development activities.
It is estimated that this sector has been contributing about 40% of the gross value of output produced in the manufacturing sector and the generation of employment by the small scale sector is more than five times to that of the large-scale sector.
This clearly shows the importance of small-scale industries in the economic development of the country. The small-scale industry has been playing an important role in the growth process of Indian economy since independence in spite of stiff competition from the large sector and not very encouraging support from the government.
The following are some of the important role played by small scale industries in India:

1. Employment Generation: The basic problem that is confronting the Indian economy is increasing pressure of population on the land and the need to create massive employment opportunities. This problem is solved to larger extent by small scale industries because small scale industries are labour intensive in character. They generate huge number of employment opportunities. Employment generation by this sector has shown a phenomenal growth. It is a powerful tool of job creation.
2. Mobilisation of resources and entrepreneurial skill: Small-scale industries can mobilize a good amount of savings and entrepreneurial skill from rural and semi-urban areas remain untouched from the clutches of large industries and put them into productive use by investing in small-scale units. Small entrepreneurs also improve social welfare of a country by harnessing dormant, previously overlooked talent.

Thus, a huge amount of latent resources are being mobilised by the small-scale sector for the development of the economy.

3. Equitable distribution of income: Small entrepreneurs stimulate a redistribution of wealth, income and political power within societies in ways that are economically positive and without being politically disruptive.

Thus small-scale industries ensures equitable distribution of income and wealth in the Indian society which is largely characterised by more concentration of income and wealth in the organised section keeping unorganised sector undeveloped. This is mainly due to the fact that small industries are widespread as compared to large industries and are having large employment potential.

4. Regional dispersal of industries: There has been massive concentration of mindustries in a few large cities of different states of Indian union. People migrate from rural and semi urban areas to these highly developed centres in search of employment and sometimes to earn a better living which ultimately leads to many evil consequences of over-crowding, pollution, creation of slums, etc. This problem of Indian economy is better solved by small scale industries which utilize local resources and brings about dispersion of industries in the various parts of the country thus promotes balanced regional development.
5. Provides opportunities for development of technology: Small scale industries nhave tremendous capacity to generate or absorb innovations. They provide ample opportunities for the development of technology and technology in return, creates an environment conducive to the development of small units. The entrepreneurs of small units play a strategic role in commercializing new inventions and products. It also facilitates the transfer of technology from one to the other. As a result, the economy reaps the benefit of improved technology.
6. Indigenization: Small scale industries make better use of indigenous organizational and management capabilities by drawing on a pool of entrepreneurial talent that is limited in the early stages of economic development. They provide productive outlets for the enterprising independent people. They also provide a seed bed for entrepreneurial talent and a testing round for new ventures.
7. Promotes exports: Small scale industries have registered a phenomenal growth in export over the years. The value of exports of products of small-scale industries has increased to ₹ 393 crores in 1973-74 to ₹ 71,244 crores in 2002-03. This contributes about 35% India's total export. Thus they help in increasing the country's foreign exchange reserves thereby reducing the pressure on country's balance of payment.
8. Supports the growth of large industries: The small scale industries play an important role in assisting bigger industries and projects so that the planned activity of development work is timely attended. They support the growth of large industries by providing components, accessories and semi finished goods required by them. In fact, small industries can breathe vitality into the life of large industries.
9. Better industrial relations: Better industrial relations between the employer and employees helps in increasing the efficiency of employees and reducing the frequency of industrial disputes. The loss of production and man days are comparatively less in small-scale industries. There is hardly any strikes and lock out in these industries due to good employee-employer relationship.

Definition: Small scale industry is defined as a unit in which investment in original value of plant and machinery should not exceed ₹ 1.5 crore. However, to facilitate technology upgradation and enhance competitiveness, the investment limit has been raised to ₹ 5 crore in respect of 71 high tech export oriented items in drugs, pharmaceuticals, hand-tools and knitwear sectors, etc. Characteristics of Small-Scale Industries:
Ownership: Ownership of small scale unit is with one individual in sole proprietorship or it can be with a few individuals in partnership.

1. Management and Control: A small-scale unit is normally a one man show and even in case of partnership the activities are mainly carried out by the active partner and the rest are generally sleeping partners. These units are managed in a personalized fashion. The owner is actively involved in all the decisions concerning business.
2. Area of Operation: The area of operation of small units is generally localized catering to the local or regional demand. The overall resources at the disposal of small scale units are limited and as a result of this, it is forced to confine its activities to the local level.
3. Technology: Small industries are fairly labour intensive with comparatively smaller capital investment than the larger units. Therefore, these units are more suited for economics where capital is scarce and there is abundant supply of labour.
4. Gestation Period: Gestation period is that period after which teething problems are over and return on investment starts. Gestation period of small scale unit is less as compared to large scale unit.
5. Flexibility: Small scale units as compared to large scale units are more change susceptible and highly reactive and responsive to socio-economic conditions. They are more flexible to adopt changes like new method of production, introduction of new products etc.
6. Resources: Small scale units use local or indigenous resources and as such can be located anywhere subject to the availability of these resources like labour and raw materials.
7. Dispersal of Units: Small scale units use local resources and can be dispersed over a wide territory. The development of small scale units in rural and backward areas promotes more balanced regional development and can prevent the influx of job seekers from rural areas to cities.

• 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.

• 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.

• They help to 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.
• 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.

• 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.

Many incentives are provided both by the central and state governments to promote the growth of small-scale industries and also to protect them from the onslaught of the large-scale sector.
Among the various incentives given to small-scale industries the following deserve special mention:

1. Reservation: To protect the small-scale industries from the competition posed by large-scale industries, the Government has reserved the production of certain items exclusively for the small-scale sector. The number of items exclusively reserved for the small-scale sector has been considerably increased during the Five Year Plan Periods and now stands at 822.

However, prior to the 1997-98 budget the number of items reserved for the smallscale sector stood at 836. The Finance Minister dereserved 14 items in the 1997-98 budget.

2. Preference in Government Purchases: The government as well as government Organizations shows preference in procuring their requirements from the small-scale sector. For instance, the Director General of Supplies and Disposals purchases 400 items exclusively from the small-scale sector. The National Small-Scale Industries Corporation assists the SSI units in obtaining a greater share of government and defense purchases.
3. Price Preference: The SSI units are given price preference up to a maximum of 15 percent in respect of certain items purchased both from small-scale and large-scale units.
4. Supply of Raw Materials: In order to ensure regular supply of raw materials, imported components and equipment's, the Government gives priority allocation to the small-scale sector as compared to the large-scale sector. Further, the Government has liberalised the import policy and streamlined the distribution of scarce raw materials.
5. Excise Duty: In respect of SSI units excise duty concessions are granted to both registered and unregistered units on a graded scale depending upon their production value. Full exemption is granted up to a production value of ₹ 30 lakhs in a year and 75% of normal duty is levied for production value exceeding ₹ 30 lakhs but not exceeding ₹ 75 lakhs. If the production value exceeds ₹ 75 lakhs, normal rate of duty will be levied.
6. RBI's Credit Guarantee Scheme: In 1960, the RBI introduced a Credit Guarantee Scheme for small-scale industries. As per the scheme, the RBI takes upon itself the role of a guarantee organisation for the advances which are left unpaid, including interest overdue and recoverable charges. This scheme covers not only working capital but also advances provided for the creation of fixed capital.
7. Financial Assistance: Small-scale industries are brought under the priority sector. As a result, financial assistance is provided to SSI units at concessional terms by commercial banks and other financial institutions. With a view to providing more financial assistance to the small scale sector, several schemes have been introduced in the recent past. The Small Industries Development Fund (SIDF) in 1986, National Equity Fund (NEF) in 1987 and the Single Window Scheme (SWS) in 1988. SIDF provides refinance assistance to small scale and cottage and village industries and the tiny sector in rural areas. NEF provides equity type support to small entrepreneurs for setting up new projects in the tiny/ small-scale sector. In 1996, the small-scale sector received 42.3 percent of the total priority sector advances from public sector banks.
8. Technical Consultancy Services: The Small Industries Development Organisation, through its network of service and branch institutes, provides technical consultancy services to SSI units. In order to provide the necessary technical input to rural industries, a Council for Advancement of Rural Technology was set up in October, 1982. The Technical Consultancy Organisation renders consultancy services to SSI units at a subsidised rate. Many financial institutions are also providing subsidies to SSI units for availing of consultancy services. For instance, small entrepreneurs proposing to set up rural, cottage, tiny or small-scale units, can get consultancy services at a low cost from the Technical Consultancy Organizations approved by the All-India and State-level financial institutions.

They have to pay only 20% of the fees charged by a Technical Consultancy Organisation. The entire balance of 80% or ₹ 5,000 whichever is lower is subsidized by the Industrial Finance Corporation of India.

9. Machinery on Hire Purchase Basis: The National Small Industries Corporation (NSIC) arranges supply of machinery on hire purchase basis to SSI units, including ancillaries located in backward areas which qualify for investment subsidy. The rate of interest charged in respect of technically qualified persons and entrepreneurs coming from backward areas are less than the amount charged to others. The earnest money payable by technically qualified persons and entrepreneurs from backward areas is 10% as against 15% in other cases.
10. Transport Subsidy: The Transport Subsidy Scheme, 1971 envisages grant of a transport subsidy to small-scale units in selected areas to the extent of 75% of the transport cost of raw materials which are brought into and finished goods which are taken out of the selected areas.
11. Training Facilities: The Entrepreneurship Development Institute of India, Financial Institutions, Commercial banks, Technical Consultancy organizations, and NSIC provide training to existing and potential entrepreneurs.
12. Marketing Assistance: The National Small Industries Corporation (NSIC), the Small Industries Development Organisation (SIDO) and the various Export Promotion Councils help SSI units in marketing their products in the domestic as well as foreign markets. The SIDO conducts training programmes on export marketing and organises meetings and seminars on export promotion.
13. District Industries Centers (DICs): The 1977 Industrial Policy Statement introduced the concept of DICs. Accordingly a DIC is set up in each district. The DIC provides and arranges a package of assistance and facilities for credit guidance, supply of raw materials, marketing ete.

The problems faced by small scale industries are:

1. Finance: The severe problems faced by SSIs is that of non- availability of adequate finance to carry out its operations.

Small business generally begins with a small capital base.

Many of the units in the small sector face scarcity of capital 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.

2. Raw materials: If raw material are available in scarce amount then SSIs have to compromise on the quality or have to pay a high price to get good quality materials.

Also, they don't have enough storage facility and finance to buy goods in bulk. These things affects their business.

3. Managerial skills: Small business is generally promoted and operated by a single person, who may not possess all the managerial skills required to run the business.

Many of the small business entrepreneurs possess sound technical knowledge but are less successful in marketing the output also SSIs cannot afford to hire professional managers.

4. Labour: Small business firms cannot afford to pay higher salaries to the employees, which affects employee willingness to work hard and produce more.

Thus, productivity per employee is relatively low and employee turn over is generally high.

5. Marketing: SSIs don't have specialisation in marketing its products or services.

Therefore, these business depend excessively on middlemen, who at times exploit them by paying low price and delayed payments.

6. Quality: These industries fo not adhere to desired standards of quality and focus more on cutting the cost and keeping the prices low.

They do not have the necessary knowledge and expertise about quality issues.

7. Capacity utilisation: Due to lack of marketing skills or lack of demand, most of the small businesses do not fully utilize their capacity.

Gradually this leads to sickness and closure of the business.

8. Technology: SSIs uses outdated technology which results in low productivity and uneconomical production.
9. Global Competition: Due to liberalization, privatisation and globalisation policies followed by most parts in world, small business find it difficult to stand against large industries and MNCs.

India is a developing country and in developing countries the scope of small scale industries are very wide.
It is contributing to the socio-economic development in the following ways

1. Contribution in GDP Small industries in India account for 95% of the industrial units in the country.

They contribute almost 40% of the gross industrial value added in the economy.

2. Contribution in Exports 45% of the total exports from India come from small scale industries.

Gems and jewellery, handicrafts, sports goods, etc, are some items of exports from small scale sector.

3. Employment Generation Small industries are the second largest employers of human resources.

After agriculture and generate more number of employment opportunities per unit of capital invested compared to large industries.

4. Variety of Production Small industries produce a wide variety of products ranging from mass consumption goods, readymade garments.

hosiery goods stationery items soaps and detergents, domestic utensils, leather, plastic and rubber goods, processed foods and vegetables, wood and steel furniture. paints, varnishes, safety matches. etc.

To the sophisticated items like electric and electronic goods, drugs and pharmaceuticals, agricultural tools and equipment and several other engineering products. Handlooms, handicrafts and other products from traditional village industries add to this diverse production from SSIs.

5. Regional Balance Small industries contribute significantly to the balanced development of the country as they produce simple products using simple technologies and depend on locally available resources both material and labour and can be set up anywhere in the country.
6. Entrepreneurship Development Small industries provide opportunity for entrepreneurship development in the country.

The latent skills and talents of people can be transformed into business ideas with little capital investment and almost nil formalities to start a small business.

7. Low Cost of Production Small industries have the advantage of low cost of production as they use locally available resources which are less expensive:

Establishment ana running costs of small industries are lower because of low overhead expenses.

8. Quick Decision Making Due to the small size of the organisations, quick and timely decisions can be taken without consulting many people.

New business opportunities can therefore be captured at the right time.

9. Customised Production Small industries can design the product as per the tastes/ preferences/ needs of individual customers.

They can provide customised production of even non-traditional products such as computers and other such products.

They can produce according to the needs of the customers as they use simple and flexible production techniques.

10. Personal Touch Small industries have inherent strength of adaptability and a personal touch and therefore maintain good personal relations with both customers and employees.

The government does not have to interlere in-the functioning of a small scale unit.

The small-scale sector has played a major role in employment generation, regional development and export promotion in India.
The government has taken many initiatives to solve the problem of finance and marketing in the small scale sector.
The government has set up various institutions to assist the small scale sector and also provide support measures and programmes meant for the promotion of these industries:

1. National Bank for Agriculture ND Rural Development (NABARD): It was setup in 1982 to promote integrated rural development.

Apart from agriculture, it supports small industries, cottage and village industries, and rural artisans.

It provides credit and offers counseling and consultancy services and organizes training and development programmes for rural entrepreneurs.

2. The Rural Small Business Development Centre (RSBDC): It was set up by the world association for small and medium enterprises and is sponsored by NABARD.

It provides management and technical support to current and prospective micro and small entrepreneurs in rural areas.

3. National Small Industries Corporation (NSIC): It was set up in 1955 with a view to promote, aid and foster the growth of small business units in the country.

It works on promoting the use of indigenously available raw materials.

It helps small businesses in exporting their products and works on developing export worthiness of products.

It also provides mentoring and technology development services for small businesses.

4. 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.

5. The National Commission for Enterprises in the Unorganised Sector (NCEUS): It was constituted 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.

7. Rural and Women Entrepreneurship Development (RWED): It aims at promoting a conducive business environment and at building institutional and human capacities that will encourage and support the entrepreneurial initiatives of rural people and women.
8. World Association for Small and Medium Enterprises (WASME): It is an international non-governmental organisation based in India 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.

9. Scheme of Fund for re-generation of Traditional Industries (SFURTI): The Central Government set up this fund to make the traditional industries more productive and competitive and to facilitate their sustainable development.

The main objectives of SFURTI are to develop clusters of traditional industries in various parts of the country; build innovative and traditional skills, improve technologies and encourage public-private partnerships, develop market intelligence etc.

10. The District Industries Centers (DICs): The District Industries Centers Programme was launched on May 1, 1978, with a view to providing an integrated administrative framework at the district level, which would look at the problems of industrialisation in the district, in a composite manner.

Special emphasis on the industrial development of backward, tribal and hilly areas has been the concern of the Government of India expressed in all the Five Year Plans and industrial policy statements.
Realising that backward areas development is a long-term process, several committees were appointed to identify the criteria for identifying backward areas and also to suggest schemes to take up the Herculean task of balanced regional development.
The implementation of integrated rural development programme is one such attempt made by the government to develop backward areas.
The rural industries project programme initiated by the Government of India was meant to develop small business units in select rural areas.
Though the backward area development programmes varied from state to state, they cumulatively represented a significant package of incentives to attract industries in backward areas.
Some of the common incentives offered are discussed as below:
Land: Every state offers developed plots for setting up of industries.
The terms and conditions may vary.
Some states don’t charge rent in the initial years, while some allow payment in instalments.
Power: Power is supplied at a concessional rate of 50 per cent, while some states exempt such units from payment in the initial years.
Water: Water is supplied on a no-profit, no-loss basis or with 50 per cent concession or exemption from water charges for a period of 5 years.
Sales Tax: In all union territories, industries are exempted from sales tax, while some states extend exemption for 5 years period.
Octroi: Most states have abolished octroi.
Raw materials: Units located in backward areas get preferential treatment in the matter of allotment of scarce raw materials like cement, iron and steel etc.
Finance: Subsidy of 10-15 per cent is given for building capital assets.
Loans are also offered at concessional rates.
Industrial estates: Some states encourage setting up of industrial estates in backward areas.
Tax holiday: Exemption from paying taxes for 5 or 10 years is given to industries established in backward, hilly and tribal areas.