Small Business Management

Unit 1

Unit 1

Introduction to Small Business Management

Structure:
1.1
Introduction
Objectives
1.2
Significance of Small Business
1.3
Evolution of Small Business in India
1.4
Definition of Small Business
1.5
Characteristics of Small Business
1.6
Forms of Organisation
1.7
Common problems Affecting Small Businesses
1.8
Summary
1.9
Glossary
1.10 Terminal Questions
1.11 Answers

1.1 Introduction
Small business is considered as a powerful engine of economic
development of any country.Many nations both developed and
developing recognised that the small industry sector is a useful vehicle for
growth. In developing counties, small business is a major source of creation
of new employment opportunities on a wide scale in the shortest possible
time, promoting entrepreneurial culture. It is small industries that have
propelled countries like Japan, Taiwan and Korea become powerful.
Small business is mostly, privately owned and operated with a small number
of employees. Their operations are confined to the vicinity of their
locationwith a relatively low volume of sales.
However, it must be noted that all big businesses started small. Infosys was
started by NR Narayanamurthy along with six software engineers in a small
room in his house with $10,000 borrowed from his wife. It is now an
enterprise with turnover of $31254 crores in 2011-12 and as on 31-03-2012
it had a cash and bank balance of $18057 crores.
Shahnaz Husain is a very famous name in the cosmetic industry and
pioneering beauty treatments using Ayurveda. She started off small with the
help of family members and today Shahnaz Herbals employs more than
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1800 people, with exports to 60 countries and a range of over 250 highselling beauty products.
This unit highlights the significance of small business, contribution to the
economy and evolution of small business in India. The institutional support
for promotion and development for giving fillip to the sector, definition and
characteristics, forms of ownership and implications, common issues that
hampers the process of growth are also dealt with.
Objectives:
After studying the unit, you should be able to:
explain the concept of small business
recognise its role in the economy
describe the evolution of small business
distinguish between different forms of organisations that small
businesses can take
explain the characteristics of small business and identify the common
problems of small business.

1.2 Significance of Small Business

Significance of small business can be understood under two dimensions
its contribution to the national economy and its contribution to
entrepreneurship contribution to the economy.
Both in developed and developing countries, small business plays a pivotal
role in generating employment, improving exportsin a significant manner
and contributing to Gross Domestic Product (GDP) as could be seen from
the table 1.1:
Table 1.1: Share of small business in world economies
Share of small business in
Description
US and EU countries
China, Japan, Malaysia, and South
Korea
African countries

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GDP

Employment

Exports

40-60%

60%

30-60%

40%

70-80*

NA

30-40%

70*

4%

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In India, it is estimated that (as on 31st March 2011) small business:

Contributed 8.72% to GDP.
Employed 732 lakh persons.
Accounted for 40% of the exports of the country.
In terms of value, the sector accounts for about 45 percent of the
manufacturing output valued at $1095758 crores.
There are 312 lakh small enterprises.
The sector has consistently registered a growth rate of over 12% which
is than the rest of the industrial sector.
The fixed investment in the sector is $773487 crores.
The sector manufactures 6,000 products ranging from traditional to hitech items. The product groups are depicted in the pie chart below.
(Refer Chart 1.1)
Chart 1.1: Products of MSMEs

A) Contribution to entrepreneurship
For promotion of different types of enterprises micro, small and medium
entrepreneurship development is one among the inevitable elements. This is
especially true for first generation entrepreneurs. Entrepreneurship is the
process of exploring opportunities, scanning the environment, mobilising
resources, converting ideas into viable business proposition and providing
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new products and services to the society by bringing together and

combining various factors of production.
Entrepreneurial dynamism forms the cornerstone of a progressive society as
it creates value through identification of business opportunity, management
of risk appropriate to opportunity, honing of management skills, maintaining
financial discipline and ensuring resources to bring a project to fruition.
The first step for a person aspiring to become an entrepreneur is to make an
inventory of traits. This self-awareness and analysis helps define strengths
and overcome weaknesses. The process involves relentless efforts on the
part of the entrepreneurs to become successful. The government has set up
institutes to facilitate entrepreneurial development which drives economic
growth.
Self Assessment Question
Fill in the blanks:
1. Name the three main areas to which small business makes a
contribution.
a) _______
b) _______
c) _______

1.3 Evolution of Small Business in India

Small scale and cottage industries encompassing a variety of industries
ranging from manufacturing of iron safes, locks, carpets, marble jigs,
baskets, hand-loom and khadi cloth and coir products existed in India for a
long time. However, official recognition of their pivotal role in economic
development came after India attained independence. The small industry
can be categorised under three major heads:
1. Coirindustries.
2. Small Scale Industries producing industrial products or engaged in
providing services.
3. Khadiand Village Industries.
The role of each of the above is elaborated below:
1. Coir Industries
In 1953, Coir Board was established as a statutory body under the Coir
Industry Act, 1953 for promoting the overall development of the coir industry
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and improvement of the living conditions of the workers engaged in this

traditional industry.
India is the largest coir producer in the world accounting for more than 80
percent of the total world production of coir. The coir sector in India is
diverse and involves households, co-operatives, NGOs, manufacturers and
exporters. This Industry is the best example of producing beautiful artefacts,
handicrafts and utility products from coconut husks which is otherwise a
waste.
The coir industry employs more than 7 lakh people of whom a majority is
from rural areas belonging to the economically weaker sections of society.
Nearly 80% of the coir workers in the fibre extraction and spinning sectors
are women.The fibre production estimated during 2011-12 is 6,00,000 M.T.
2. Small Scale Industries
In 1955, The National Small Industries Corporation (NSIC) Ltd. was
established by the Government of India with a view to to aid, counsel,
assist, finance, protect and promote the interest of small industries in India.
NSIC continues to remain at the forefront of industrial development
throughout the country with its various programmes and projects to assist
the Micro, Small and Medium Enterprises (MSME) in the country, generally
on a commercial basis. It provides a variety of support services to micro and
small enterprises by catering to their different requirements in the areas of
raw material procurement, product marketing, credit rating, acquisition of
technologies and adoption of modern management practices
The important functions NSIC:
1. Provides financial assistance by way of hire-purchase scheme for
purchase of machinery and equipment, required for the setting up
industries.
2. Provides equipment on lease.
3. Assists in marketing of the products of SSIs.
4. Helps in exporting the product of SSIs.
5. Provides training to workers of SSIs in various trades.
6. Helps in the development and upgradation of technology and
modernisation of industries.
7. Undertakes construction of industrial estates.
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8. Purchases huge quantity of important raw materials and distribute the

same to SSIs at reasonable rates.
9. Develops prototype machines and equipment to pass on to SSIs for
commercial production.
10. Sets up small scale industries in other developing countries on turnkey.
International cooperation
Since its inception, NSIC has contributed to strengthening enterprise-toenterprise cooperation, South-South cooperation and sharing best practices
and experiences with other developing countries, especially those in the
African, Asian and Pacific regions.NSIC thus plays a prominent role for the
development of entrepreneurship as well as industrialisation in the country.
Training andentrepreneurship development
For promotion of different types of enterprises micro, small and medium
entrepreneurship development is one among the inevitable elements. This is
especially true for first generation entrepreneurs. To undertake this task on
regular basis, the Ministry has set up three national-level Entrepreneurship
Development Institutes (EDIs). These are:

The National Institute for Micro, Small and Medium Enterprises

(NI-MSME), Hyderabad (then known as National Institute for Small
Industry Extension Training, set up in 1960).

The National Institute for Entrepreneurship and Small Business

Development (NIESBUD), NOIDA, set up in 1983.

The Indian Institute of Entrepreneurship (IIE), Guwahati, set up in 1994.

3. Khadi and Village Industries

In 1956, the Khadi and Village industries Commission (KVIC) was set up
under an Act of the same name. The main objectives of KVIC include:
i. The social objective of providing employment in rural areas.
ii. The economic objective of producing saleable articles.
iii. The wider objective of creating self-reliance amongst people and
building up a strong rural community spirit.

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Functions of KVIC are to:

i. Plan and organise training of people employed or desirous of seeking
employment in Khadi and village industries.
ii. Build up directly or through specified agencies reserves of raw
materials and implement and supply them or arrange supply of raw
materials and train persons engaged or likely to be engaged in
production of hand spun yarn or khadi or village industries.
iii. Facilitate production and to promote the sale and marketing of khadi or
products of village industries or handicrafts.
iv. Encourage and promote research in the technology used in Khadi and
village industries, including the use of non-conventional energy and
electric power with a view to increasing productivity and eliminating
drudgery.
v. Provide financial assistance to people engaged in the development and
operation of khadi or village industries and guide them through supply
of designs, prototypes and other technical information for the purpose
of producing goods and services in effective demand.
Grouping of industries
While Khadi programmes comprise hand spun and hand woven cotton,
woollen, muslin and silk varieties, the Village Industries programmes have
been classified into seven broad groups. These are:
i. Mineral Based Industry.
ii. Forest Based Industry.
iii. Agro Based and Food Processing Industry.
iv. Polymer and Chemical Based Industry.
v. Rural Engineering and Bio-Technology Industry.
vi. Hand Made Paper and Fibre Industry.
vii. Service Industry.
Industries connected with meat, manufacturing or sale of intoxicant items
like beedi/pan/cigar/cigarette, etc., any hotel or dhaba or sales outlet serving
liquor, preparation/producing tobacco as raw materials, tapping of toddy for
sale, etc., are not assisted under KVI programme as these are neither ecofriendly nor in line with the ideology and ethos of Mahatma Gandhi.

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Performance of KVI SectorYear 2011-12 (upto Feb 2012)

Khadi

VI

Production ($ crores)

637.95

22913.69

Sales ($ crores)

821.10

24334.20

Employment (Lakh persons)

10.35

119.77

Rural area means the area comprised in any village, and includes the area
comprised in any town, the population of which does not exceed twenty
thousand or such other figure as the Central Government may specify from
time to time.
Similarly, the term village industries has been redefined in amended KVIC
Act, 1956 as any industry located in a rural area which produces any goods
or renders any service with or without the use of power and in which the
fixed capital investment per head of artisan or worker does not exceed $
One lakh ($ one lakh and fifty thousand in case of village industry located in
a hilly area) or such other sum as may, by notification in the Official Gazette,
be specified from time to time by the Central Government.
Micro, small and medium enterprises
In 2006, Micro, Small and Medium Enterprises Development Act was
passed by the Parliament. Subsequent to this enactment, Ministry of Agro
and Rural Industries and Ministry of Small Scale Industries were merged
into a single Ministry, namely, Ministry of Micro, Small and Medium
Enterprises. KVIC and Coir Board were also brought under this Ministry.
This Ministry designs policies and promotes/facilitates programmes, projects
and schemes and monitors their implementation with a view to assisting
MSMEs and help them scale up.
MSMED Act was to address policy issues affecting MSMEs as well as the
coverage and investment ceiling of the sector. The salient features of the Act
include:

Setting up of a National Board for MSMEs.

Classification of enterprises.

Advisory Committees to support MSMEs.

Measures for promotion, development and enhancement of MSMEs.

Schemes to control delayed payments to MSMEs.

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Enactment of rules by State Governments to implement the MSMED Act,

2006 in their respective States.

The primary responsibility of promotion and development of MSMEs is of

the State Governments. However, the Government of India, supplements the
efforts of the State Governments through various initiatives. The role of the
Ministry of Micro, Small and Medium Enterprises (M/o MSME) and its
organisations is to assist the States in their efforts to encourage
entrepreneurship, employment and livelihood opportunities and enhance the
competitiveness of MSMEs in the changed economic scenario.
The schemes/programmes undertaken by the Ministry and its organisations
seek to facilitate/ provide:
i) Adequate flow of credit from financial institutions/banks.
ii) Support for technology upgradation and modernisation.
iii) Integrated infrastructural facilities.
iv) Modern testing facilities and quality certification.
v) Access to modern management practices.
vi) Entrepreneurship development
appropriate trainingfacilities.

and

skill

upgradation

through

vii) Support for product development, design intervention and packaging.

viii) Welfare of artisans and workers.
ix) Assistance for better access to domestic and export markets.
x) Cluster-wise measures to promote capacity building and empowerment
of the units.
The Ministry of MSME has two Divisions called Small and Medium
Enterprises (SME) Division and Agro and Rural Industries (ARI)
Division.
The SME Division is allocated the work, inter-alia, of administration,
vigilance and administrative supervision of the National Small Industries
Corporation (NSIC) Ltd., a public sector enterprise and the three
autonomous national level entrepreneurship development/training
organisations. The division is also responsible for:

Implementation of schemes related to marketing and export promotion.

Performance monitoring and evaluation.

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The ARI Division looks after the administration of two statutory bodies viz.
the Khadi and Village Industries Commission (KVIC) and Coir Board and
Mahatma Gandhi Institute for Rural Industrialisation (MGIRI). It also
supervises the implementation of the Prime Ministers Employment
Generation Programme (PMEGP).
The implementation of policies and various programmes/schemes for
providing infrastructure and support services to MSMEs is undertaken
through, the Office of the Development Commissioner (MSME) and NSIC,
KVIC and the three training institutes.
Mahatma Gandhi Institute for Rural Industrialisation (MGIRI)
There has been a long felt need to create a mechanism that would provide
high quality science, technology and management inputs and support in a
comprehensive manner the Khadi and Village Industry (KVI) sector. Such a
facility would strengthen rural industrialisation, enhance employment in rural
areas and help identify new areas with opportunities for the sector. With this
objective the Wardha Institute started by Mahatma Gandhi in 1935 was
upgraded as a national institute to be called Mahatma Gandhi Institute for
Rural Industrialisation in 2003. The objectives of this are:

To accelerate rural industrialisation for sustainable village economy so

that KVI sector co-exists with the main stream.

Attract professionals and experts to Gram Swaraj.

Empower traditional artisans.

Innovation through pilot study/field trials.

R and D for alternative technology using local resources.

Functions
The activities are being carried out by its six divisions:
1. Chemical-based Industries Division.
2. Khadi and Textiles Division.
3. Bio-processing Industries Division.
4. Rural Energy and Infrastructure Division.
5. Rural Crafts and Engineering Division.
6. Management and Systems Division.

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Achievements during 2011-12.

The institute has delivered 23 major Science and Technology interventions
for rural industries. Some of the significant ones are as follows:
1. New modified 8-spindle charkha to enhance yarn quality and reduce
drudgery, demonstration.
2. Solar power tool for craftsman.
3. A web portal www.udyamisahayak.com with a repository for technology
applications, equipment and machineries, process training institutions,
source of raw materials and spares, institutional services and
consultancy and problem capturing database.
4. Single twist machine for making low count yarn sliver that will be used
on low countyarn Charkha.
5. 150 trendy state-of-art designs have been created and uploaded on
www.Green khadi designs.com, a web portal for Khadi institutions to
benefit from the use oftrendy designs and increase their market share.
6. Use of Calcium Lactate preservative for calcium enrichment in soya milk.
7. On entrepreneurship development, MGIRI has done significant
contribution by helping 65 self-financed entrepreneurs.Around 252 KVIC
personnel have been trained on various aspects of production, quality,
etc.
National Manufacturing Competitiveness Programme (NMCP)
With a view to build the capacity of Indian micro, small and medium
manufacturing enterprises for overcoming competition in the global markets
and facing challenges being posed by the entry of multi-nationals in
domestic markets, the Ministry of MSME has implemented National
Manufacturing Competitiveness Programme (NMCP).
The objective of NMCP is to ensure healthy growth of MSME manufacturing
sector. The 10 components of the programme dealing with firm level
competitiveness are being implemented in Public-Private-Partnership (PPP)
mode. The 10 components of NMCP address the entire gamut of
manufacturing in the sector. The details of the components of the
programme are given below:

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Component with Short Name

Marketing Support / Assistance to MSMEs (BAR CODE)

Support for Entrepreneurial and Managerial Development of SMEs

through incubator

Setting up Mini Tool Room and Training Centres (MTR)

Building Awareness on Intellectual Property Rights (IPR)

National Programme for Application of Lean Manufacturing (LEAN)

Enabling Manufacturing Sector to be Competitive through Quality

Management

Standards and Quality Technology Tools (QMS/QTT)

Technology Upgradation and Quality Certification Support to SMEs

(TEQUP)

Marketing Assistance for SMEs and Technology Upgradation Activities

(MARKETING)

10

Design Clinic Scheme to bring Design expertise to the Manufacturing

sector

11

Promotion of ICT in Indian Manufacturing Sector (ICT)

Self Assessment Questions

Fill in the blanks
2. The two divisions under the Ministry of MSME are ______________
and ___________
3. The two major functions of KVIC are ____________ and _________
4. The Institute created for providing science and technology inputs
tokhadi and village industries is known as ____________
State whether the following statements are true or false:
5. The objective of NIMSME is to promote the development of smallscale
industry.
6. Coir is obtained from coconut husk.

1.4 Definition of Small Business

In India, small business is broadly classified into two types on the basis of
the nature of activity manufacturing or production, and services.
1. Services

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It is further classified based upon the amount invested in plant and

machinery or equipment into micro, small or medium enterprise. The Micro,
Small and Medium Enterprise Development Act, 2006 (MSMEDA) classifies
all small businesses as given below.In case of enterprises engaged in the
manufacture or production of goods pertaining to any industry specified in
the first schedule to the Industries (Development and Regulation)Act, 1951,
as:
1. A micro enterprise, where the investment in plant and machinery does
not exceed twenty 5 lakh rupees.
2. A small enterprise, where the investment in plant and machinery is more
than 25 lakh rupees but does not exceed 5 crore rupees.
3. A medium enterprise, where the investment in plant and machinery is
more than 5 crore rupees but does not exceed 10 crore rupees.
In case of enterprises engaged in providing or rendering of services, as:
1. A micro enterprise, where the investment in equipment does not exceed
10 lakh rupees.
2. A small enterprise, where the investment in equipment is more than 10
lakh rupees but does not exceed 2 crore rupees.
3. A medium enterprise, where the investment in equipment is more than 2
crore rupees but does not exceed 5 crore rupees.
Classification of MSME
Manufacturing

Services

Micro

Investment
in
plant
machinery up to $25 lakhs

and

Investment in equipment up to
$10 lakhs

Small

Investment
in
plant
and
machinery between $25 lakhs to
100 lakhs

Investment
in
equipment
between $10 lakhs and $200
lakhs

Medium

Investment
in
plant
and
machinery between $1crore and
$10 crores

Investment
in
equipment
between two crores and five
crores

Self Assessment Questions

State whether the following statements are true or false
7. Small enterprise in India is defined by the size of investment, number of
people employed and number of owners.

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8. A service unit with a total investment of $15 lakhs including $8 lakhs in

equipment is a small enterprise.

1.5 Characteristics of Small Business

1. Personal character: Mostly businesses have the same person as
owner and manager, which enables it to operate independently.
Owners/managers are able to provide customised services, which could
be their USP.
2. Flexibility: Being led by one person, waiting for approval from higher
authority is absent in small businesses. Response to changing
environment is quick in small businesses agility and enthusiasm helps
small entrepreneurs to respond to changing trends quickly.
3. Labour intensive: Scope for employment opportunity creation is
immense in small businesses, which is of great significance for a country
like India.
4. Local area of operation: Small businesses function in a local level but
may have their services spread out in different level local, regional or
international.
5. Short gestation period: Investment for small businesses is usually low
and the time given for output is short. Because of this there is quick
returns from small businesses, which helps in increasing the pace of
economic growth.
Self Assessment Question
State whether the following is true or false
9. Hierarchy is a characteristic feature of small business.

1.6 Forms of Organisation

Small business may operate under any one of several forms of organisation.
These are:
1) Sole proprietorship
Here the owner and manager is the same person, who will have the
responsibility of taking care of each and every aspect of the business. This
is a common business structure. With this structure, operation is easy and
devoid of any authoritative control. Managerial flexibility is much more in this
form and legal obligations are lesser when compared to other forms of
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business. But in case of any liabilities, owner will have to take the complete
responsibility.
The grocery store at the street corner is an example of sole proprietary
business. The milkman who delivers milk at the doorstep every morning
owns the business of production and supply of milk.
2) General partnership
In general partnership, two or more people agree to share each aspect of
business, which could be in terms of contributing money, skill and labour.
Partners share profit, loss and managerial aspects of the businesses. They
are also equally responsible for the liabilities. A written agreement is used
for stating the formal terms of partnership.
When the proprietor of the grocery store mentioned above retires and his
two sons run the business, it becomes a partnership.
The sewing machine was invented by Isaac Merritt Singer. But the
manufacture and marketing of the sewing machine was taken up by the IM
Singer and Co. which was a partnership of three people.
3) Limited liability partnership
Limited Liability Partnership (LLP) Bill, 2008 was introduced in India with an
objective to combine entrepreneurship, knowledge and risk capital for
providing further impetus to economic growth. LLP is composed of at least
two individuals as designated partners and may include one or more limited
partners who can be individuals, firms or other body corporates. The
designated partners manage the business and share profits and losses fully.
Limited partners share profits of the business, but their losses are limited to
the extent of their investment. Limited partners are usually not involved in
the day-to-day operations of the business. LLP is a separate entity
registered as a body corporate under the Companies Act. Existing
Partnership firms, Private Limited Companies and unlisted Public
Companies can convert into LLP if they want to.
4) Registered company
Any small business can register itself as a limited liability company under
the Companies Act of 1956. The Companies Act provided for two main types
of organisations viz., Private Limited Company and Public Limited Company.

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A Private Limited Company is limited by restriction on number of

shareholders (2 to 50), transfer of shares and ineligibility to invite capital
from general public.
On the other hand, Public Limited Companyis not constrained by any of
these restrictions.However, the liability of any shareholder is restricted to
his/her investment in the company in both the cases.
5) Cooperative
Referred to as a "co-op", a cooperative is a limited liability business that can
be organised both for-profit and not-for-profit. A for-profit corporate has
members, and not shareholders, who share the power of decisionmaking.
Cooperatives are usually classified as consumer cooperatives or worker
cooperatives. Cooperatives are essential to the ideology of economic
democracy.
The size of the registered MSMEs sectoris estimated to be 15.64 lakh. Of
the totalworking enterprises, the proportion of micro, small and medium
enterprises were 94.94%, 4.89% and 0.17% respectively. This comprisesof
67.10% manufacturing enterprises and 32.90% services enterprises. About
45.23% ofthe enterprises were located in rural areas.
As per the FourthAll India Census of MSMEs, there are 246 lakh
unregistered units in the MSME sector.
AMUL is an example of a successful cooperative society.
Registration of MSMEs with DIC
Any small business, desirous of availing the benefits under MSMED Act,
irrespective of the form of organisation described above, must file the E M
(Entrepreneur Memorandum) with the DIC concerned.
Types of EM filing
There are two types of filing of Entrepreneur Memorandum Part-I & Part-II.
1. Entrepreneur Memorandum Part-I is for the proposed enterprises.
2. Entrepreneur Memorandum Part-II is to the established enterprises after
commencement of commercial production.
Filing of EM Part 1 is compulsory for medium enterprises engaged in
manufacture or production activity. It is optional in all other cases.

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Once production or rendering of service commences Part 2 must be filed by

all enterprises, whether micro, small or medium.
Self Assessment Questions
Fill in the blanks
10. LLP is registered as a separate entity under _____________ Act.
11. The maximum permissible number of members in a private limited
company is ___________.

1.7 Common Problems Affecting Small Businesses

Small business entrepreneurs face a number of challenges in successfully
starting and running their businesses. Some of the key constraints that are
being faced by the Indian small businesses are:
Management
1. Dishonesty and lack of integrity of owners.
2. Lack of proper organisation, untimely death/transfer of key personnel in
the unit.
3. Dissension among partners/directors, etc.
4. Difficulty in coping with suppliers of raw materials, water, power, etc.
Marketing
1. Keen competition.
2. Inadequate product base.
3. Dependence on one or few buyers.
4. Improper distribution channels.
5. Changes in the fashion.
6. Lack of market intelligence.
7. Inadequate marketing skills and resources.
Finance
1. Slow and non-recovery of receivables.
2. Excessive investment in fixed assets.
3. Diversion of working capital for acquisition of fixed assets.
4. Diversion of funds from the business to associates/for non-productive
purposes.
5. Faulty costing and pricing of products.
6. Carrying of very high current assets disproportionate to scale of
production.
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7. Cost of new product development very high compared to the profit.

8. Inadequate/delayed credit from bankers.
Production
1. Lack of adequate production facilities and production planning.
2. Shortage of raw materials, power and other inputs.
3. Poor quality control.
4. Labour problems.
5. Transport bottlenecks.
6. Technology becoming obsolete/old and not improved.
7. Warehousing
8. Seasonal business
Others
1. Lack of adequate room to adapt to changes in government policy.
2. Inadequate protection from natural calamities.
3. Delays in project implementation due to inexperience or limited
resources or both.
4. Poor risk management. Their threshold level of tolerance to changes of
markets and vagaries of banking system is so small that any adverse
environment can have enormous consequences leading to sickness or
even closure.
5. Heritage weakness. As per Ministry of MSME, a major weakness is a
heritage weakness. Due to theprotectionist, subsidy driven, reservation
based regime, the mind-set ofthe sector continues to demand similar
legacy treatments. It isinteresting to note that this tendency is gradually
dying out in thenewer generation of entrepreneurs but the thought
leaders from thisnewer generation are yet to emerge. We can term it as
a major weakness but also a transient weakness, which may require
extensive workshops/success story based approach for changing
thismind-set and overcome this problem.
Self Assessment Questions
Fill in the blanks
12. Two problems common to many small business enterprises are:
_________
_________

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1.8 Summary

Small business is a key driver of economic growth.

Government constituted several institutions for promoting small

business.

Coir Board set up in 1953promotes the growth and development of coir

industries.

National Small Industries Corporation set up in1955 promotes the

growth and development of small business.

Khadi and Village Industries Board, set up in 1956, promotes the growth
and development of khadi and village industries.

Mahatma Gandhi Institute for Rural Industrialisation was set up in 2003

to provide high quality science and technology inputs to khadi and
village industries andaccelerate rural industrialisation.

In 2006 Coir Board, NSIC, KVIB and MGIRI were all brought under the
Ministry of Micro, Small and Medium Industries.

Classification of small business is based on the criteria of investment

and the nature of business, i.e., manufacture of goods or provision of
service.

The characteristics of small business are mostly individual ownership

andmanagement, with personal care.

Small business can take one of the different forms of organisation such
as proprietorship, general partnership, limited liability partnership, public
limited company, private limited company or cooperative.

Small businesses suffer from several problems in the areas of finance,

marketing and procurement.

1.9 Glossary

LLP: Limited Liability Partnership is partnership registered under the

Companies Act and where one of the partners liability is limited to
his/her capital investment in the firm.

GDP: Gross Domestic Product represents the market value of all goods
and services produced in a country over a period of time.

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1.10 Terminal Questions

1. What do you mean by small business in India?
2. Discuss the role of small businesses in the economy.
3. What are the different forms of organisations that small businesses can
take?
4. What problems does a small business encounter with regard to
marketing and finance?

1.11 Answers
Self Assessment Questions
1. a) GDP.
b) Employment.
c) Exports.
2. Small and Medium Enterprises (SME) Division, and Agro and Rural
Industries (ARI) Division.
3. a) To plan and organise training of persons employed or desirous of
seeking employment in khadi and village industries.
b) To arrange supply of raw materials.
(any two from the list of functions listed under the functions of
KVIC)
4. Mahatma Gandhi Institute for Rural Industrialisation (MGIRI)
5. False
6. True
7. False
8. False
9. False
10. Companies Act
11. Fifty (50)
12. a) Dishonesty and lack of integrity of owners.
b) Slow or non-recovery of receivables.
Hint: Pick any two problems from the numerous listed in Section 1.7
Terminal Questions
1. Small business in Indiais classified into two types manufacturing or
production and services on the basis of the nature of activity carried out.
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Unit 1

It is further sub-classified into micro, small or medium on the basis of the

amount invested in plant and machinery or equipment. Refer Section 1.4
for more details.
2. Small business is a catalytic agent for contributing to GDP, generating
employment, boosting exports and stimulating entrepreneurship. Refer
Section 1.2 for more details.
3. Small business can take one of the different forms of organization such
as proprietorship, partnership, limited liability partnership, public limited
company, private limited company or cooperative. Refer Section 1.6 for
more details.
4. Some of the problems small business encounter in marketing and
financing are keen competition, inadequate product base, improper
distribution, slow and non-recovery of receivables, excessive investment
in fixed assets, etc. Refer Section 1.7 for more details.
References/E- references:
http://msme.gov.in/MSME-Annual-Report-2011-12-English.pdf
http://shodhganga.inflibnet.ac.in/bitstream/10603/684/7/07_chapter-i.pdf

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