Chapter - 9

SMALL BUSINESS & ENTREPRENEURSHIP

Small scale industries contribute significantly to the development process

and acts as a vital link in industrialization in terms of production, employment and
exports for economic prosperity by widening the entrepreneurial base and use of
local raw materials and indigenous skills.

Types of Small Business

Business enterprises are classified as Manufacturing Enterprises, Service

Enterprises, Village Industries and Cottage Industries. Among these
manufacturing and service enterprises are again subdivided into Micro, Small and
Medium Enterprises. The definition used by the Government of India to describe
small industries is based on the investment in plant and machinery. The Micro,
Small and Medium Enterprises Development (MSMED) Act 2006 has been passed
by the Government of India to address the issues of small enterprises.

Investment in Plant and Machinery

Types of Business
Manufacturing Enterprises Services Enterprises
Micro Enterprise Not exceeding Rs. 25 Lakh Not exceeding Rs. 10
Lakh
More than Rs. 25 Lakh but More than 10 lakh but not
Small Enterprise not exceeding 2 crore
exceeding Rs. 5 crore
More than 5 crore but not More than 2 crore but not
Medium Enterprise
exceeding 10 crore exceeding 5 crore

Village Industries – They are located in rural area which produces any goods,
renders any service with or without the use of power and in which the fixed
capital investment per head or artisan or worker is specified by the central
government from time to time.

Cottage Industries – They are also known as Rural Industries or Traditional

Industries. They are not defined by capital investment criteria but on the basis of
characteristics, which are as follows:
i. These are organised by individuals with private resources.
ii. Normally use family labour and locally available talent.
iii. Simple equipments are used.
iv. Small capital investment.
v. Produce simple products, normally in their own premises.
vi. Production of goods using indigenous technology.

Role of Small Business in Rural India

Small business organizations play an important role in the socio economic

development of the country. Some of them are as follows:
a. Multiple sources of income for family.
b. Self- employment opportunities in commerce, manufacturing and service
segments.
c. Promotion of agro based rural industries.
 d. Employment opportunities for artisans and the weaker sections of society.
e. Migration of rural people to urban areas in search of employment has been
stopped.
f. Helped to solve the problem of poverty and unemployment.
g. Helped to reduce the income inequalities up to a certain extent.
h. Accelerated industrial growth of the country.

Problems of Small Business – Following are the major problems faced by small
business in India:

1. Non-Availability of Finance
2. Non-Availability of Raw materials
3. Managerial skills – SSIs are generally promoted and operated by single person,
who may not possess all the managerial skills required to run the business.
They are also not in a position to afford professional managers.
4. Labour – Productivity per employee is relatively low and employee turnover is
generally high due to low remuneration. It also faces lack of specialization.
5. Marketing – In most of the cases, marketing is a weaker area of small
organisations; therefore exploitation of middlemen is very more.
6. Quality – Many small businesses do not follow the desired standards of quality
due to shortage of finance and resources.
7. Capacity utilization – Many of the SSIs are operating below full capacity due to
lack of marketing skills or demand. It will cause to increase its operating cost
and leads to sickness and closure of the business.
8. Technology – Most of the SSIs use outdated technology, resulting in low
productivity and uneconomical production.
9. Sickness – Due to many internal and external problems, most of the SSIs are
in the edge of sickness.
10. Global competitions – Most of the SSIs face competitions not only from
medium and large industries, but also from Multinational Companies in the
areas of quality, technology, finance, managerial skills etc.

Government Assistance to Small Industries and Small Business Units

Government provides various support measures and programs for the

promotion of small and rural Industries, some of them are given below:
a. National Small Industries Corporation (NSIC)
 Set up in the year 1955 to promote and foster the growth of SSIs in
India.
 Supply of indigenous and imported machines on hire purchase basis.
 Supply of raw materials – locally and imported.
 Support in export of products.
 Monitoring and advisory services.
 Providing latest technology.
 Awareness on technological upgradation.
 Development of software technology parks and technology transfer
centres.
 b. District Industries Centres (DICs)
 Established in 1978
 To support small entrepreneurs at district level.
 Provides all facilities and support to set up small and village industries.
 Identification of suitable schemes for entrepreneurs by Central and State
Govts.
 Preparation of feasibility reports on each industry.
 Arrangement of credit facilities and equipments.
 Arrangement of raw materials.
 To impart training for artisans, entrepreneurs etc.

Entrepreneurship Development

Entrepreneurship is the process of setting up of one’s own business. The person who
sets up the business is entrepreneur and the outcome of the process (business
unit) is called enterprise.

“Entrepreneur is a person who organizes the business, undertakes the risk and enjoys
the profit” – Richard Cantillon_French Economist.

Characteristics of Entrepreneurship

1. Systematic activity –It requires skill, knowledge and competency which can
be acquired, learnt and developed through education, training, observation
and experience. Thus we can say the entrepreneurs are made but not born.
2. Lawful and purposeful activity – The aim of entrepreneurship is to run a lawful
business.
3. Brings innovation and creativity to the business.
4. Organizes production – The entrepreneur brings the idea of business and the
factors of production, thus he organizes the production activities.
5. Risk taking – The entrepreneur takes all the risks in the business as he
brings all the factors of production including capital.

Need for Entrepreneurship

1. Contribution to GDP
2. Generation of Employment
3. Generation of Business Opportunities for Others
4. Social Benefits
5. Provides Innovation
Startup India Scheme
Startup India Scheme is an important initiative by Govt. of India to promote a
strong ecosystem for nurturing innovation and startup (new enterprises) in the
country. As per the notification of the Ministry of Commerce and Industry, a
startup means:

1. An entity incorporated or registered in India.

2. Not older than 5 years.
3. Annual turnover does not exceed Rs.25 crores in any preceding year.
4. Working towards innovation, development or commercialization of products
or services with the support of technology or Intellectual Property Rights
(IPR) and Patents.

Aims and Objectives of Startup Scheme:

1. Trigger an entrepreneurial culture.

2. Create awareness about the charms of entrepreneurship among the youth.
3. Encourage more dynamic startups by motivating educated youth as a good
career.
4. To support the startups in various stages such as pre-startup stage, nascent
(beginning stage) and early post startup stage.
5. To promote under represented target groups such as women, backward
communities, scheduled castes, scheduled tribes
Startup India – Action Point

1. Simplification and hand-holding – Formalities simplified and extended support

to the startup ventures.
2. Startup India Hub – To create a single point contact for the entire startup
system and to enable knowledge exchange and access to funding.
3. Legal support and fast tracking Patent Examination – To give protection for
patents, trademark and designs of innovative startups through SIPP
(Startups Intellectual Property Protections).
4. Easy Exit – In the event of failure and wind up of operations, procedures are
adopted to reallocate capital and resources towards more productive
avenues. Thus the entrepreneurs can easily exit from the business if
required.
5. Incubator setup – The government envisages setting up of incubators across
the country in PPP mode (Private Public Partnership).
6. Tax exemption – The profit of startup initiatives are exempted from Income
Tax for a period of 3 years.

Ways to fund startup

1. Boot Strapping – Self-financing by the promoters from their personal savings

and resources.
2. Crowd Funding – Pooling resources by a group of people for a common goal
especially through internet platforms.
3. Angel Investment – Angel investors are the individuals with surplus cash who
have keen interest to invest in startups. They also offer mentoring or advice
along with capital.
4. Venture Capital – Venture capitalists provide professionally managed funds
to companies and startups that have huge potential. It is also called risk
capital as it is invested in new ventures.
5. Business Incubators and Accelerators – Incubators provide funds for startups
in the early stage of its business, whereas accelerators help the startups to
run or to take a giant leap in business.

6. Microfinance and NBFCs – Microfinance is a category of financial services

targeted at individuals and small business who lack access to conventional
banking or who have not qualified for a bank loan.

NBFCs (Non-Banking Financial Companies) are registered under Indian

Companies Act and they perform only lending functions to public and they
cannot accept demand deposits such as SB A/c, Current A/c etc.
Intellectual Property Rights (IPR)

Intellectual Property is a category of property that includes intangible creations of

human intellect. The legal rights conferred on such products (idea) are called IPR.
Once it is allotted to a person by the Govt. authority, he/she can rent, give or sell
it to others.

Intellectual property is divided into two categories: Industrial properties like

trademarks, industrial designs etc. and copyrights which includes literary and
artistic works such as novels, poems, plays, films music, photographs, drawings,
paintings, sculptures, architectural designs etc.

Importance of IPR

1. Path-breaking inventions – It encourages new inventions in all segments. Eg:

Cancer cure medicines.
2. Incentive – It incentivizes inventors, authors, creators etc. for their work.
3. Helps to prevent loss of income – It allows the inventor to sell the rights to
third parties and thus he/she can generate income.
4. Recognition – It helps authors, creators etc. to get recognition for their work.

Types of IPs

1. Copy Right – It is the right to “not copy” conferred upon the creators of
literary, artistic, musical, sound recording, films etc.
2. Trademark – Any word, name, or symbol that gives an identity to goods or
service made by an individual, company, organization etc.
3. Geographical Indication – GI is an identification which identifies agricultural,
natural or manufactured products originating from a definite geographical
territory. Eg: Banaras Brocades, Kashmiri Pashmina Woolen Shawl, Nagpur
Orange etc.
4. Patent – It is an exclusive right granted by the government to prevent others
from making, using, offering for sale, selling or importing the invention. For
an invention to be patentable, it must be new, non-obvious (not easily
discoverable) and having an industrial application.
5. Design – It includes shape, pattern etc. that is applied to any article. Eg:
Design of a car, house, bottle etc. The term of protection of a design is
valid for 10 years, which can be renewed for further 5 years. After that it
will come under public domain.
6. Plant Variety – It is a type of variety which is bred and developed by farmers.
Eg: hybrid versions of potatoes, rice, pepper etc. This lead to the growth of
seed industry.
7. Semiconductor Integrated Circuits Layout Design – It is used to perform
electronic circuitry function. Eg; Computer Chip.