NCERT Solutions for Class 11 Business Studies Chapter 9 - MSME and Business Entrepreneurship

Very Short Answer Questions:

1. Which year was the MSMED Act passed?

Ans. 2006

2. What is a micro-enterprise?

Ans. A micro-enterprise refers to a small-scale business that typically operates with a limited number of employees and minimal capital investment. Micro enterprise are commonly found in sectors such as retail, food services, handicrafts and small scale manufacturing.

3. What is a cottage industry?

Ans. A cottage industry is a small-scale manufacturing unit which produce simple products normally with the help of family members. A small amount of investment is required to start a cottage industry and the number of people required to characterise cottage industries are also less.

4. What is meant by Village and Khadi Industry?

Ans. Village industries are the industries situated in rural and backward areas with investment in fixed assets as per the central government's rules.
Khadi industries are industries that weave handlooms from materials like silk, wool, cotton, etc. or handlooms from the mixture of two or more yarns.

5. Give any two characteristics of entrepreneurship development.

Ans. Characteristics of entrepreneurship development are:
(a) Effective time management
(b) Visualising aim and success
(c) Proper listening and communication
(d) Seeking help when needed

6. What is the difference between GDR and ADR? Explain.

Ans. GDR: It stands for Global Depository Receipts. It is a type of bank certificate that acts as shares in foreign companies. It is a mechanism by which a company can raise equity from the international market. These can be traded on all stock exchanges over the world. They are denoted in US dollars. So, it can be easily converted into shares at any time.
ADR: It stands for American Depository Receipts: US-based companies issue these kinds of receipts. These are only traded in the US Securities market and are only sold to US citizens only.

Short Answer Questions:

1. What is MSME?

Ans. MSME is defined as Micro, Small and Medium Enterprises.

Micro-enterprises have a capital investment of less than ₹1 crore and turnover of less than ₹5 crores.
A small enterprise is one with a capital investment of less than ₹10 crores and a turnover of less than ₹50 crores.
Medium enterprise businesses are ones with a capital investment of less than ₹50 crores, and turnover less than ₹250 crores.

2. State the meaning of entrepreneurship.

Ans. Entrepreneurship is an individual or group of persons exploiting a business opportunity by creating a new and innovative product or substantially enhancing an existing production method, product, or service.

3. MSME and Entrepreneurship are connected. Do you agree? Give two reasons.

Ans. Yes, MSME and Entrepreneurship are connected.
Reasons: MSMEs offer banks funding assistance. They encourage the growth of entrepreneurship and the upgrading of skills by establishing specialised training institutes. MSMEs are known for provision of genuine assistance in gaining entry to domestic and international markets.

4. State the role of MSME in the development of a country?

Ans.

Quick decisions: It enables quick and timely decisions due to the small size of the business.
Employment Opportunities: After the agriculture sector, small-scale units provide the largest employment opportunities to the people and also facilitate optimum utilisation of resources as because of easy technology and easily available resources.
Balance Development: The establishment of business units that rely on locally available resources, simple technology, and labour class workers enables their setup in any location or region. This approach fosters Balod development throught out the country by laverging local resources and involving diverse segments of the workforce.
Eliminate poverty: Small-scale firms majorly adopt labour-intensive technique instead of capital-intensive ones, thus allowing them to utilise more rural labour at cheap rates. As a result, small-scale industries eradicate the hidden unemployment in the agricultural sector while offering a source of income for backward regions.

5. What are the different parameters used to measure the size of MSMEs?

Ans. The size of micro, small and medium enterprises can be measured using several factors. These factors comprise the company's turnover, the amount of money invested, the number of people engaged in the company, etc. As per the Government of India, micro, small and medium enterprises are based on investment in plant and machinery and turnover.

6. State the meaning of Village and Khadi industries.

Ans.

Village industries: These industries common small-scale economic activities based in rural areas, utilising local resources and traditional skills for the production of goods and services, aimed at rural development and empowering local communities.
Khadi industry: These industries focused on the production and promotion of hand-spun and hand-woven khadi fabric, associated with India's freedom movement, utilising natural fibers, traditional spinning techniques, and manual weaving, contributing to rural employment and preserving traditional craftsmanship.

7. State any three major problems faced by MSMEs.

Ans.

Raw materials: Due to the absence of some specific raw materials, MSMEs have to adjust and need to compromise either in the quality of raw materials or in high prices of raw materials. Both conditions add to the difficulties of such enterprises.
Finance: MSMEs have limited finance availability, making day-to-day work difficult. In addition, raising finance from commercial banks is another challenge, as these industries have poor creditworthiness and goodwill.
Managerial skills: Firms are run by individuals lacking technical, entrepreneurial, and managerial skills. Furthermore, due to a lack of education, things become even more complicated. Therefore, they can neither manage the business independently nor can hire people due to the shortage of funds.

Long Answer Questions:

1. How do small-scale industries contribute to the socio-economic development of India? Discuss.

Ans. Small-scale industries play an essential role in ensuring the development and growth of developing countries. The following points are highlighted as their contribution to the socio-economic development are :

Employment generation: After the agriculture sector, small-scale units provide the largest employment opportunities to the people and also facilitate optimum utilisation of resources as because of easy technology and easily available resources.
Market share: Small-scale industries make up 94% of the industrial units in India. They contribute about 41% of the gross industrial value added and 44% of India's total exports.
Wide range of products: Small-scale industries produce a huge variety of consumer goods, such as safety matches, stationery items, and handicrafts. Besides, small-scale industries also produce a few products using technology, like radios, calculators, televisions etc.
Regional balance: Small-scale industries produce simple goods and use very basic technology. Furthermore, these industries do not require heavy investment; thus anyone anywhere worldwide can set up SSIs. Therefore, small industries benefit the area where it is set up and help in reducing the regional balances in industrial development among different areas of a country.

2. Describe the role of small businesses in rural India.

Ans.

Equitable income distribution: The capital investments of small-scale industries are low because of using labour-intensive technique. This inspired industrialists to start units on a small scale. As a result, small industries benefit the area where it is set up and help in reducing the regional balances in industrial development among different areas of a country.
Accelerate growth: Small-scale industries drastically contribute to the exports and GDP, therefore leading to the country's economic growth.
Eliminate poverty: Small-scale firms majorly adopt labour-intensive technique instead of capital-intensive ones, thus allowing them to utilise more rural labour at cheap rates. As a result, small-scale industries eradicate the hidden unemployment in the agricultural sector while offering a source of income for backward regions.
Reduce migration from rural to urban areas: Many people migrate from rural areas to urban cities in search of better employment and improved living standards. Small-scale industries helps to reduce migration by providing employment opportunities to rural people in their areas.
Generate employment opportunities: Small-scale units provide the largest employment opportunities to the people and also facilitate optimum utilisation of resources as because of easy technology and easily available resources. This proves to be a benefit, particularly for the weaker sections of society.

3. Discuss the problems faced by small scale industries.

Ans. The problems faced by the small scale industries are as follow:

Limited Finance: Small business often struggle to secure adequate financing for their operations. They may lack creditworthiness and collateral required to obtain loans from financial institutions, leading them to rely on local money lenders who charge high interest rates. Additionally, small business may experience a shortage of working capital due to delayed payments of capital tied up in unsold inventory.
Procurement of Raw Materials: Small businesses face difficulties in procuring raw materials. They may encounter issues such as unavailability of required materials, compromising on quality, or having to pay higher prices for good quality materials. Limited storage capacity restricts their ability to purchase raw materials in bulk, diminishing their bargaining power.
Managerial Skills: Many small business owners lack comprehensive managerial skills necessary for running a business. While they may possess technical expertise, they may struggle with marketing and other operational aspects. Hiring professional managers may be un-affordable for small businesses, resulting in increased responsibilities for the owner.
Less Productive Labour: Small businesses often face challenges in attracting and retainning talented employees due to limited resources for offering competitive salaries. This can lead to lower employee motivation and productivity. The absence of specialisation and division of labour further impacts productivity levels.
Marketing: Small businesses typically face difficulties in effective marketing. They heavily rely on middlemen who may exploit them by offering low prices and delaying payments. Direct marketing may not be feasible due to a lack of necessary infrastructure and resources.

4. What measures the Government have taken to solve the problem of finance and marketing in the small scale sector?

Ans. The small scale industries have played a key role in India's export promotion, employment generation, and regional development. The Government of India has realised that a lot more can be achieved if the two main problems, i.e., inefficient market penetration and inadequate funds, are removed. For this, the government has set up the following agencies:

SIDBI: It was established to offer indirect and direct financial help under different schemes. It provides financial and credit requirements for small-scale industries.
NABARD: It was set up in 1982 to encourage rural development. It is an apex banking body that regulates the operations of rural and gramin banks. The main emphasis of NABARD is to give easy and cheap credit facilities to the rural, cottage, and small industries.
NCEUS: It was established in 2004 to enhance efficiency and improve the global competitiveness of the small-scale sector. It addresses small industries' challenges, especially in the un-organised sector.
WASME: It is an international non-governmental organisation that addresses the difficulties of small and medium-scale industries. The International Committee for Rural Industrialisation helps in the development and growth of rural areas.

5. ‘Innovation is integral to MSME’. Discuss giving reasons for your answer.

Ans. Due to its rapid growth and expansion, technology has become a crucial component affecting all sectors, including manufacturing, agriculture, and services. Therefore, innovations and technical breakthroughs significantly influence how industries and enterprises contribute to the nation's economic development and global expansion.
The world is changing quickly, and businesses' competitiveness must be maintained by continual innovation, including new technologies to improve quality standards and developing proper infrastructural support. To assist all firms in improving their machinery and tools, efforts have been made to develop relevant incubation units, laboratories, and specialised centres.

Business incubators are also required to assist business persons with commercialisation to speed up the transformation of such technology from easy ideas to profitable firms that create jobs.
To modernise technology, we need infrastructure support to allow businesses to generate novel concepts that benefit MSMEs.
The initiatives of Ministry of MSME's initiatives is designed to inspire and support the latent creativity of individuals and the adoption of knowledge-based innovative projects.
The Technology Centres play a vital role in helping MSME initiatives in the country by offering access to skilled labour, the latest technologies, and technical advisory by opening doors for technical skill development at all levels.

6. ‘Creativity and Innovation is the key to MSME’. Justify the statement.

Ans. The reasons are:

To modernise technology, we need infrastructure support to allow businesses to generate novel concepts that benefit MSMEs.
The Ministry of MSME's initiatives is designed to inspire and support the latent creativity of individuals and the adoption of knowledge-based innovative projects.
The technology centres play a vital role in helping MSME initiatives in the country by offering access to skilled labour, the latest technologies, and technical advisory by opening doors for technical skill development at all levels.
The main objective is to inspire and support the latent creativity of individuals and the adoption of knowledge-based innovative projects.
Technology-based startups are regularly considered high-growth and high-risk businesses and need an empowering environment to improve the possibilities of success. Hence, 'Creativity and Innovation is the key to MSME'.