Important Questions for CBSE Class 11 Business Studies Chapter 9 - Small Business

Very Short answer Questions - 1 or 2 Marks

1. Which type of Industry uses family labour and local available talent while running the business?

Ans: Cottage industries use labour and local available talent while running the business.

2. A micro small scale industry has investment of Rs. 24 lakhs and is engaged in manufacturing business. Now, it wants to increase its investment by Rs. 4 Lakhs. What type of small Business will it become and what is the maximum investment limit in such cases?

Ans: Micro. Micro-enterprises are ones with a capital investment of less than Rs. 1 crore, and turnover less than Rs. 5 crore

3. Which type of enterprise is owned, controlled and managed by a woman or a group of women holding share capital not less than 51%?

Ans: Woman entrepreneur 

4. Name areas where SSLs feel threatened from global enterprises.

Ans: The areas are: 

• Quality

• High-end Technology

• Financial creditworthiness, 

• Managerial capabilities

• Marketing capabilities.

5. Name any 2 merits of SSLs in the export trade of India.

Ans: The two merits are”

• GDP and exports: These industries has a significant contribution to the GDP and exports, thus leading to the economic growth of the country

• Personal touch: Small businesses are known for their artist products, versatility and personal touch, which allows them to maintain positive relationships with customers abroad, thus adding financial value to their business.

6. What different parameters are used to measure the size of manufacturing business?

Ans:  Investment and Turnover limits under MSMEs

As against the earlier bifurcation of MSMEs into manufacturing and service sector, both are treated as one and the same, and are defined under a common metric.  The investment and turnover limits are:

The parameters are:

7. State features of cottage industries.

Ans: Cottage industries are characterised by certain features such as:

• Typically, family labour and locally available skill are used;

• The use of simple and basic tools;

• The capital outlay is minimal;

• Manufacturing of simple products is there, mainly in their own premises;

• The use of indigeneous technology is made to manufacture products.

Short answer Questions - 3 or 4 Marks

8. Write the objective of the Marketing Assistance scheme?

Ans: The objectives are:

• To flourish and enhance the marketing competitiveness of the MSMEs.

• To showcase the competencies of MSMEs.

• To keep MSMEs informed about the current market situation and how it affects their operations. To make it easier for MSMEs to form consortia for the marketing of their goods and services

• To develop a platform for an interaction of MSMEs with large institutional buyers.

• To disseminate/promote various government programmes 

• To improve the marketing skills of micro, small, and medium-sized businesses.

9. What is the aim of NSIC?

Ans: National Small Industries Corporation (NSIC) aims at providing:

• To make available indigenous and imported machines on easy hire-purchase terms.

• Source, supply, and distribute raw materials, both domestic and imported.

• To facilitate the export of the products of small business units.

• Mentoring and advisory services.

10. Write any two objectives of establishment of NABARD.

Ans: It has been adopting a multi-pronged, multi-purpose strategy for the promotion of rural business enterprises in the country.

• Apart from agriculture, it supports small industries, cottage and village industries, and rural artisans using credit and non-credit approaches.

• It offers counselling and consultancy services and organizes training and development programmes for rural entrepreneurs

11. Write any three problems of small business in India

Ans: The problems are:

• Finance: There is limited finance availability with these enterprises that makes the day to day working difficult. Also raising finance from banks is a challenge because of these enterprises' poor credit worthiness.

• Raw materials:  Due to unavailability of certain raw materials, these enterprises have to adjust and compromise either in terms of poor quality raw material, or high price raw material. Both situations add to the problems of such enterprises.

• Managerial skills: Business run by a single person or family, which lacks managerial skills, technical skills and entrepreneurial skills. Also due to no education, things become even more difficult. Hence neither they are capable to manage the enterprises on their own, nor they can hire people for such work sue to shortage of financial resources.

12. Define the role of small business in the following area:

a) Variety of products 

Ans: The small businesses produce a wide range of products, including mass-market goods, ready-made clothing, hosiery, stationery, soaps and detergents, household furnishings, handlooms, and handicrafts.

b) Industry output and export

Ans: India's small industries account for 95% of the country's industrial units. They account for over 40% of India's gross industrial value-added and 45% of the country's total exports.

c) Balance development 

Ans: These business units can be set up anywhere at any location and region, as they are dependent on locally available resources, simple technology, and labour class people. This facilitates balanced development of the country.

d) Customization

Ans: Small businesses are most suited for customisation, which involves tailoring a product as per the needs, tastes, demands and preferences of certain customers.

13. On the basis of capital contribution identify the type of SSI from the following:

a) Capital contribution on plant and machinery is Rs. 9 lakh.

Ans: Micro

b) Capital contribution on plant and machinery is Rs. 7.5 crore

Ans: Small

c) Capital contribution on plant and machinery is Rs. 26. 5 crore

Ans: Medium

Long Answer Questions - 5 or 6 Marks

14. What are the incentives given by Govt. to the Industries set up in hilly, backward and rural areas.

Ans: Incentives given by the govt to the industries set up in hurry, backward and rural area are as follows:

• Land: Every state offers plots for setting up industries, however there might be differences in the terms and conditions of each state. For example, some states do not charge rent during the first few years, while others allow instalment payments.

• Power: Power is supplied at a concessional rate of 50 per cent, while some states exempt such units from parment in the initial years.

• Water: Water is provided on a no-profit, no-loss basis or with a 50% discount or five-year exemption from water payments.

• Sales Tax: In all union territories, industries are exempt from sales tax while some states extend exemption for a 5 years period.

• Octroi: Most states have abolished octroi.

• Raw resources: Units in underdeveloped areas are given priority when it comes to obtaining rare raw materials such as cement, iron, and steel.

• Finance: Subsidy of 10-15% per cent is given for building capital assets. Loans are also offered at reasonable rates.

• Industrial estates: Some states encourage setting up of industrial estates in backward areas.

• Tax holiday: Industries founded in backward, hilly, and tribal areas are exempt from paying taxes for 5 or 10 years.s

Q15. Preet food Industries set up a food and beverages processing plant in the rural area of Haryana and opted for labour intensive techniques due to easy availability of labour and to provide employment to local people. Board of directors decided to invest 50 lakhs to acquire plant and machinery, Rs. 1 crore to buy land, Rs. 20 Lakhs to buy raw material and Rs. 20 lakhs to maintain day to day expenses.

(a) Name the Act of Industries which is applicable to the above industry.

Ans: The Micro, Small and Medium Enterprises Development (MSMED) Act of 2006 tackles concerns such as definition, credit, marketing, and technological advancement. Medium-sized businesses and service-related businesses are also covered by these laws. The MSMED Act, 2006 came into force wef., October, 2006 

(b) Which category of part (a) will the above industry come from?

Ans: Micro. 

(c) State the investment limit in this category.

Ans: Micro-enterprises are ones with a capital investment of less than Rs. 1 crore, and turnover less than Rs. 5 crore

(d) What values has been followed by the above company.

Ans: Values followed by the company are as follows:

• Employment generation: The company contributed to the generation of employment opportunities for local people by opting for labour intensive techniques

• Balanced Regional Development: The setting up of food and beverages processing plants by the company in the rural area of Haryana contributed to the balanced regional development.

• Concern for society: The generation of employment, and the develom=pment of rural areas highlights the company’s concern for the society. 

16. Board of Directors of "Bio Pure water Ltd." decides to set up its first unit in the hilly area of Himachal Pradesh Company requires Rs. 3 crores for it and Rs. 50 Lakhs for working capital. The company has earned marked 15% of its profit for the Educational and Health needs of its employees and their family members.

(a) The above company comes under which category as per MSMEDAct 2006 .

Ans: Micro. Micro-enterprises are ones with a capital investment of less than Rs. 1 crore, and turnover less than Rs. 5 crore

(b) Write any one commercial reason for setting up a unit in the hilly region.

Ans: Cheap price of land and labour

(c) According to you, what are the options available to the company for meeting its long term and short term needs.

Ans: Bank loans and equity finance. 

(d) what are the values promoted by the company.

Ans: The following are the company's values:

• Balance Regional Development: The company established its first operation in Himachal Pradesh's hilly region, contributing to the region's development.

• Employee motivation:  Employees are motivated by the company's commitment to support their educational and health needs, as well as the needs of their families.

• Job creation: Due to the low cost of land and labour in Himachal Pradesh's hilly region, the corporation opened its first plant there, resulting in an increase in job opportunities.

• Upliftment of rural area: The company has set aside 15% of its profits for the educational and health requirements of its employees and their families in the hilly region, thereby raising the quality of living and developing the rural area.

17. Explain in detail the problems faced by the small business?

AnsThe following are some of the issues that small businesses face in rural India:

• Finance: Most small businesses start with a low capital basis. Many of the units in the small sector lack the creditworthiness needed to raise finance from the markets. As a result, they rely significantly on local financial resources and are frequently victims of money lenders' exploitation. These businesses usually lack appropriate operating capital, either as a result of late payments or because their cash is locked up in unsold inventories.

• Raw Materials: Obtaining raw materials is another big issue for small businesses. Because the essential materials are not readily available, they must either compromise on quality or pay a premium price for high-quality supplies. Due to the little amount of purchases they make, their bargaining power is limited. They also can't afford to incur the risk of purchasing in bulk because they don't have the space to keep the materials.

• Management skills: Small businesses are frequently promoted and operated by lone entrepreneurs who may lack all of the managerial abilities required to run the company. Many small business owners have excellent technical understanding, but they struggle to promote their products. Furthermore, they may not have enough time to complete all of the necessary tasks. At the same time, they do not have the financial means to hire competent management.\

• Labor: Because small businesses cannot afford to offer greater compensation to their employees, employees' willingness to work hard and create more is impacted. As a result, per-employee productivity is poor, and employee turnover is significant.

• Capacity Utilization: Many small businesses are forced to run below full capacity owing to a lack of marketing skills or a lack of demand, causing their operating costs to rise. Gradually, this leads to illness and the business's closure.

• Technology: The use of obsolete or outdated technology is a severe issue for the small industries, thus resulting in low productivity and insufficient output.

• Quality: Due to traditional methods of production, these enterprises struggle to maintain standardized quality.

• Global Competition: They have to face competition with large scale industries and multinational companies.

18. SSI's are at a distinct disadvantage as compared to LSI's. Discuss some important areas of SSI which need support.

Ans: SSi's are at a distinct disadvantage as compared to LSI's, because:

• Multinational corporations, which are giants in terms of size and business volumes, compete not only with medium and big industries, but also small scale industries.

• Quality standards, technological expertise, financial creditworthiness, management and marketing competencies are all difficult to overcome on the part of SSI’s. 

• Due to the strict standards of quality certification such as ISO 9000, access to markets of developed countries is constrained. These businesses are unduly reliant on middlemen, who might exploit them by paying cheap prices and delaying payments. They lack the infrastructure required for direct marketing.

Areas where SSI’s need support are:

1. Finance: Most small businesses start with a low capital basis. Many of the units in the small sector lack the creditworthiness needed to raise finance from the markets. As a result, they rely significantly on local financial resources and are frequently victims of money lenders' exploitation. These businesses usually lack appropriate operating capital, either as a result of late payments or because their cash is locked up in unsold inventories.

2. Raw Materials: Obtaining raw materials is another big issue for small businesses. Because the essential materials are not readily available, they must either compromise on quality or pay a premium price for high-quality supplies. Due to the little amount of purchases they make, their bargaining power is limited. They also can't afford to incur the risk of purchasing in bulk because they don't have the space to keep the materials.

3. Management skills: Small businesses are frequently promoted and operated by lone entrepreneurs who may lack all of the managerial abilities required to run the company. Many small business owners have excellent technical understanding, but they struggle to promote their products. Furthermore, they may not have enough time to complete all of the necessary tasks. At the same time, they do not have the financial means to hire competent management.

4. Labor: Because small businesses cannot afford to offer greater compensation to their employees, employees' willingness to work hard and create more is impacted. As a result, per-employee productivity is poor, and employee turnover is significant.

5. Capacity Utilization: Many small businesses are forced to run below full capacity owing to a lack of marketing skills or a lack of demand, causing their operating costs to rise. Gradually, this leads to illness and the business's closure.

6. Technology: The use of obsolete or outdated technology is a severe issue for the small industries, thus resulting in low productivity and insufficient output.

7. Quality: Due to traditional methods of production, these enterprises struggle to maintain standardized quality.

8. Global Competition: They have to face competition with large scale industries and multinational companies.

19. Write notes on the following:

a) NABARD

Ans: NABARD stands for National Bank for Agriculture and Rural Development, and it is the Indian rural banking system's apex regulatory organisation. It's a development bank with the mission of providing and regulating loans in rural areas. In the Indian rural sector, NABARD promotes and develops agriculture, small scale enterprises, cottage industries, and other rural crafts.

Apart from agriculture, it supports small industries, cottage and village industries, and rural artisans using credit and non-credit approaches. It provides counselling and consulting services to rural entrepreneurs, as well as training and development programmes.

b) SFURTI

Ans: SFURTI was launched by the Ministry of Micro, Small and Medium Enterprises (MSME) to promote MSME cluster growth in the country. It was launched to  make the MSME’s competitive, lucrative, and sustainable. Also, it works for the provision of  long-term job prospects in traditional sectors, as well as to create sustained employment opportunities in traditional industries.

c) RSBDC

Ans: The Rural Small Business Development Centre (RSBDC) is a non-profit organisation that provides management and technical assistance to present and potential micro and small business owners in rural areas. RSBDC has held a number of rural entrepreneurial seminars, skill development workshops, mobile clinics and trainers training programmes, as well as awareness and counselling camps.

d) DIC'S

Ans: The District Industries Centers (DICs) give entrepreneurs all of the services and support they need to start small and village industries. The identification of feasible schemes, the preparation of feasibility reports, the organisation of financing, the provision of machinery and equipment, the provision of raw materials, and other extension services are the main functions of these centres.

e) SIDBI

Ans: The Small Industries Development Bank of India (SIDBI) was established as an apex bank to give direct and indirect financial assistance to small businesses through several initiatives. In comparable operations, it coordinates the functions of other institutions.

f) NCEUS

Ans: The National Commission for Enterprises in the Unorganized Sector (NCEUS) was established to make recommendations for actions that would improve the productivity of small businesses in the informal sector as well as to increase long-term job opportunities, especially in rural areas.