Small Business
Facts that Matter
- Businesses can be classified on the basis of size into small, medium and large scale businesses.
- Small business has its own problems and they need some special help from Government to survive in the market.
Entrepreneurship Development
- Entrepreneurship development is the process of improving the skills and knowledge of entrepreneurs through various training and classroom programs. The whole point of entrepreneurship development is to increase the number of entrepreneurs.
- By doing this, the pace at which new businesses or ventures are made gets better. On a wider level, this makes room for employment and improves the economy of a business or country. The steps below will explain how to create an effective entrepreneurship development program and how to go about enhancing it
Startup Policy
- Prime Minister Narendra Modi launched the "Start-Up India Action Plan" that aims to enable an eco-system to promote and nurse entrepreneurship across the country.
- According to DIPP
- Startup means an entity, incorporated or registered in India:
- Not prior to seven years, however for Biotechnology Startups not prior to ten years,
-With annual turnover not exceeding INK 25 crore in any preceding financial year, and
-Working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation
- Provided that such entity is not formed by splitting up, or reconstruction, of a business already in existence.
Provided further that a Startup shall be eligible for tax benefits only after it has obtained certification from the Inter-Ministerial Board, setup for such purpose.
Intellectual Property Rights
- Intellectual property rights are the rights given to persons over the creations of their minds. They usually give the creator an exclusive right over the use of his/her creation for a certain period of time.
- Intellectual property rights are customarily divided into two main areas:
(i) Copyright and rights related to copyright.
(i) Industrial property
- Intellectual Property (IP) systems can be critical in helping new ventures transform their innovation potential and creativity into market value and competitiveness.
- Intellectual Property rights (IPR) allow innovative entrepreneurs to protect their inventions.
- Effective IP systems can facilitate access to finance and the development of markets for technology, both of which help innovative entrepreneurship. Such systems also provide incentives to invest in R&D and innovation, and can encourage technology co-operation with firms, universities and PRIs.
Village and Small Sector Industries
- In India "Village and Small Sector Industries Sector' consists of traditional as well as modern small industries.
- It has eight sub-groups:
Ø Handlooms
Ø Handicrafts
Ø Coir
Ø Sericulture
Ø Khadi Industries
Ø Village Industries
Ø Small Scale Industries and
Ø Power Looms.
- Small industries and Power Looms come in the category of modern industries and rest are included under traditional industries.
- Village and small industries together provide the largest employment opportunities in India.
Meaning and Nature of Small Scale Business
- While defining small industries, one can use many parameters like number of employees in the organization, volume of output produced, capital investment in fixed assets etc.
- All these parameters have their own limitations. Which parameter should be used depends on the needed?
- Indian government defines small scale industry on the basis of investment in plant and machinery.
- Moreover, Government has defined only small and tiny units and no definition has been given for medium and large scale enterprises.
- A unit which is not tiny or small can be medium or large scale unit.
Classification of Small Scale Units]
On the basis of investment in plant and machinery, small scale units may fall under any of the following categories:
- As per MSMED Act 2006: Classification of manufacturing enterprises:
Ø An industry is a Micro Enterprise if investment in plant and machinery does not exceed Rs.25 lakhs.
Ø An industry is a Small Enterprise if investment in plant and machinery is more than Rs.25 lakhs but does not exceed Rs.5 crore.
Ø An industry is a Medium Enterprise if investment in plant and machinery is more than Rs.5 crore but does not exceed Rs.10 crores.
- Classification of Service Enterprises:
Ø An industry is a Micro Enterprise if investment in equipment does not exceed Rs.10 Lakh.
Ø An industry is a Small Enterprise if investment in equipment is more than Rs.10 lakhs but does not exceed Rs.2 crore.
Ø An industry is a Medium Enterprise if investment in equipment is more than Rs.2 crore but does not exceed Rs.5 crore.
- Ancillary Small Industrial Unit: This industry supplies minimum of 50% of its production to parent unit and investment in plant and machinery does not exceed Rs.1 crore.
- Export Oriented Units: Investment in plant and machinery does not exceed Rs.1 crore and its exports at least 30% of its annual production by the end of 3rd year of commencement of production.
- Small Scale Industries Owned and Managed by Women Entrepreneurs: Women intrepreneurs have share capital of not less than 51% (individually or jointly).
- Tiny Industrial Units: Investment in plant and machinery is not more than Rs.25 lakhs.
- Small Scale Service and Business (Industry related) Enterprises: Investment in fixed assets of plant and machinery, excluding land and building, does not exceed Rs.10 lakhs.
- Micro Business Enterprises: Investment in plant and machinery does not exceed Rs.1 lakh.
- Village Industries: Investment per person does not exceed Rs.50,000.
- Cottage Industries: These industries are not defined by capital investment. They are organized by individuals with private resources.
Features of Small Business
- Personal Character: Ownership of small scale unit is with one individual in sole- proprietorship or it can be with a few individuals in partnership.
- Labour Intensive: Small scale business makes use of labour intensive methods and thereby creates employment opportunities.
- Low Capital Investment: 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.
- Local 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.
- Quick Decisions: 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 personalised fashion. The owner is actively involved in all the decisions concerning business.
- Short 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.
Administrative Set Up for the Small Scale Industries
Indian government created two ministries to promote and develop small scale industries:
- Ministry of Small Scale Industries:
Ø Ministry of Small Scale Industries design policies, programmes and schemes to promote small scale industries.
Ø Small Industries Development Organization (SIDO) is responsible for implementing and monitoring of various policies and progammes formulated by the ministry.
- Ministry of Agro and Rural Industries:
Ø It is a nodal agency for coordination and development of village and khadi industries, tiny and micro enterprises in urban as well as rural areas.
Ø Its policies are implemented through Khadi and Village Industries Commission (KVIC), Handicrafts Board, Coir Board etc.
Role of Small Business in India
- 95% of industrial units in India fall under the category of small business.
- It contributes 45% in gross industrial value and 45% to exports.
- It is the second largest employment generating sector.
- It provides a large variety of products.
- It promotes balanced regional development.
- It leads to development of entrepreneur ship.
- It has low cost of production.
- It has an inherent strength of personal contact.
- Due to small size, these organizations can take quick decisions.
- Small industries are most suitable for those products which need to be customized as per tastes and preference of the customer.
Role of Small Business in Rural India
- It provides employment opportunities to people in rural Indian and thereby prevent disguised and seasonal unemployment.
- It prevents migration of rural people to urban areas in search of jobs.
- It improves their economic condition.
- Promotion of small scale industries and rural industrialization has been a powerful instrument in attaining twin goal of accelerated industrial growth and creating additional creative employment potential in rural and backward areas.
- It helps in overall rural development.
Problems of Small Business
- Shortage of Finance: It is the most severe problem faced by small scale business. They lack credit worthiness to raise funds as borrowed capital.
- Shortage of Raw Materials: Small producers cannot afford to buy in bulk due to limited funds. Therefore, their bargaining power is low.
- Lack of Managerial Skills: Since they are operated by single owners, they lack managerial skills.
- Incompetent Labour: As they cannot afford to pay high wages, they generally do not get competent manpower.
- Marketing Problems: A small business cannot afford to spend too much on advertisement, offers and to get information on customer's changing tastes and preferences.
- Low Quality Products: Small businesses do not have adequate resources to invest in quality research and maintain the standards of the industry. They also do not have capability to upgrade the technology.
- Idle Capacity: Many of small units operate below their capacity.
- Outdated Technology: Use of outdated technology also makes them incompetent in the market.
- Sickness: Many of SSIs are sick due to internal as well as external problems like lack of trained labour, delayed payments, lack of working capital etc.
- Global Competition: Due to the policy of LPG (Liberalisation, Privatisation and Globalisation) there is increased competition which are further adding o the problems of small business.
Institutional Support
Indian Government has set up following institutions for the benefit of the small scale industries.
- National Small Industries Corporation (NSIC): National Small Industries Corporation Ltd. (NSIC) is an ISO 9001-2008 Certified Government of India Enterprise under Ministry of Micro, Small and Medium Enterprises (MSME).
- District Industries Centers(DICs): They work under State Directorate of Industries to implement central and state level schemes.
- Small Industries Development Organization: It is the office of the Development Commissioner for Small Scale Industries. SIDO was established in 1954 on the basis of the recommendations of the Ford Foundation. It has over 60 offices and 21 autonomous bodies under its management. These autonomous bodies include Tool Rooms, Training Institutions and Project-cum-Process Development Centres.
- Rural and Women Entrepreneurship Development (RWED): It aims at building Institutional and human capacities that will encourage and support the entrepreneurial activities of rural people and women.
- National Bank for Agriculture and Rural Development (NABARD): It is an apex institution to provide finance for rural development. It was set up in 1982 with its head- quarters in New Delhi.
- The Rural Small Business Development Centre (RSBDC): It is a world level set up. It is sponsored by NABARD. It works for the socially and economically disadvantaged individuals and groups. It covers a large number of rural unemployed youth and women in several trades.
- 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 small-scale enterprises.
- The National Commission for Enterprises in the Unorganized Sector (NCEUS): It was formed in September 2004 with the objective of improving the efficiency and enhancing the global competitiveness of small-scale industries. It focuses on addressing the problems faced by small enterprises, particularly in the unorganised/informal sector.
- World Association for Small and Medium Enterprise (WASME): It is an international non-governmental organisation that addresses the problems of small and medium scale enterprises. It has set up an 'International Committee for Rural Industrialization' with the aim of designing a model for the growth and development of rural industries.
- Rural and Women Entrepreneurship Development (RWED): It aims at building institutional and human capacities that will encourage and support the entrepreneurial activities of rural people and women.
- Scheme of Funds for Generation of Traditional Industries(SFURTI): Government has recently launched the Scheme of Fund for Regeneration of Traditional Industries (SFURTI) under which 100 traditional industry clusters (of Khadi, Village industry and Coir) would be taken up for comprehensive development over 5 years. The KVIC and the Coir Board are the nodal agencies for the scheme, which will be the first comprehensive initiative for regeneration of the khadi and village Industries sector, based on the cluster development methodology.
Incentives for Enterprises in Rural, Backward and Hilly Areas
Various incentives offered to industries in backward, tribal and hilly areas are:
- Every state provides land, power and water at concessional rates to small scale industries.
- In all Union Territories, small businesses are exempted from sales tax.
- No octroi is levied on most of the states on small enterprises.
- Preferential treatment is given to SSIs in allotment of scarce raw materials.
- Loans at concessional interest rates are given to SSIs.
- On setting up of industrial estates in backward areas they can also avail of tax holiday.
- Tax exemption for a period of 5 to 10 years
Words that Matter
- Small Business: Indian Government defines small scale industry on the basis of investment in plant and machinery. A small business is one in which investment in plant and machinery is less than one crore.
- Balanced Regional Development: It refers to development which takes place in all regions of the country in a balanced manner.
- Tiny Industrial Units: Those units in which investment in plant and machinery is not more than Rs 25 lakhs.
- Ancillary Small Industrial Unit: This industry supplies minimum of 50% of its production to parent unit and investment in plant and machinery does not exceed Rs.1 crore.
- Export Oriented Units: Investment in plant and machinery does not exceed Rs 1 crore and its exports at least 30 % of its annual production by the end of 3rd year of commencement of production.
- Small Scale industries owned and managed by Women Entrepreneurs: Women entrepreneurs have share capital of not less than 51 % (individually or jointly).
- Small Scale Service and Business (Industry related) Enterprises: Investment in fixed assets of plant and machinery, excluding land and building, does not exceed Rs.10 lakhs.
- Micro Business Enterprises: Investment in plant and machinery does not exceed Rs. 1 lakh.
- Village Industries: Investment per person does not exceed Rs 50,000 or such other sum as may be specified by the central government from time to time.
- Cottage Industries: These industries are not defined by capital investment. They are organized by individuals with private resources.
- National Small Industries Corporation (NSIC): National Small Industries Corporation. (NSIC) is an ISO 9001-2008 certified government of India enterprise under Ministry of Micro, Small and Medium Enterprises (MSME).
- District Industries Centers (DICs): They work under State Directorate of Industries to implement central and state level schemes.
- National Bank for Agriculture and Rural Development (NABARD): It was set up in 1982 for promoting integrated rural development.
- Small Industries Development Organization: It is the office of the Development Commissioner for Small Scale Industries. SIDO was established in 1954 on the basis of the recommendations of the Ford Foundation. It has over 60 offices and 21 autonomous bodies under its management. These autonomous bodies include tool rooms, training institutions and project-cum-process development centres.
- Small Industries Development Bank of India (SIDBI): Small Industries Development Bank of India (SIDBI), was set up on April 2, 1990 under an act of Indian Parliament. It 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.
- The National Commission for Enterprises in the Unorganized Sector (NCEUS): The National Commission for Enterprises in the Unorganised Sector (NCEUS) 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.
- Rural and Women Entrepreneurship Development (RWED): It aims at building institutional and human capacities that will encourage and support the entrepreneurial activities of rural people ad women.
- World Association for Small and Medium Enterprise (WASME): It is a global non-governmental organization which has its headquarters at Noida, India. It has been spearheading the cause and development of Small and Medium Enterprises (SMEs) world over since its inception in 1980.
- Scheme of Funds for Generation of Traditional Industries(SFURTI): Government has recently launched the Scheme of Fund for Regeneration of Traditional Industries (SFURTI) under which 100 traditional industry clusters (of Khadi, Village Industry and Coir) would be taken up for comprehensive development over 5 years.
- KVIC: It stands for Khadi and Village Industries Corporation. The KVIC and the Coir Board are the nodal agencies for the scheme, which will be the first comprehensive initiative for regeneration of the khadi and village industries sector, based on the cluster development methodology.
- Tax Holiday: When an enterprise is exempted from tax for 5 to 10 years or is taxed at a low rate, it is called tax holiday.
