ROLE OF SMALL BUSINESS 2.docx

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1. Small business
In every economy, small businesses are a million little integral
parts of a lavish car which help the engine keep running but all
that someone can see from the outside are the four tyres (i.e
big corporations) that give the car speed. It is confirmed that
65-75% of the innovation in India come from the industry of
small business. Let us learn about the vital role small
businesses play in our economy and the problems they face.


Contribution small scale industries from past years

2. Role of Small Businesses in India
1. Industrial units
In an economy so enormous as India, 95% of the industrial units in
the country consist of small business and 40% of total industrial
output is contributed by these small industries. Again, small
businesses bag around 45% of the total exports from India.
2. Labour-oriented
Small business provides immense opportunities in the rural and semi-
urban areas. The weight of the unemployment faced by the Indian
economy is lifted by these small businesses. It is one of the most
important roles of them. Like any other economy having a large
labour force, the Indian government also encourage the operations of
small businesses to utilise the labour by drafting policies and
establishing low loan interest rates.
3. Human resource
After agriculture, small businesses are the second largest employment
provider in the Indian economy. In comparison to big corporations,
small businesses generate the most number of employment
opportunities per unit of capital invested. Therefore, they are the
second largest generators of employment in human resource.
4. Utilisation of local resources
The awareness of needs and demands of the local community make
the small businesses emerge in rural and semi-urban areas. Small
business is community-based and generally focused on fewer areas.
This gives the opportunity to the businesses to utilise the local
resources like raw material, local talent, labour and demographic

3. opportunities. The utilisation and the mobilisation of the local
resources help elevate the economic condition of that particular area.
5. Flexible and Adaptable
New business opportunity is captured at right time. The strength to
adapt and grow in the face of upcoming changes gives an edge to the
small businesses. Also, being the manufacturer and distributor, small
businesses develop a sense of personal touch with the area of
business and their customers. Limited in size and finance, there is
little or no government intervention.

Symbiotic Relationship Between
Economy and MSMEs
Association between small enterprises and the
economy is unique in every aspect. It is in fact the most
unique of its kind. Its uniqueness lies in the fact that
both depend on each other so much that they are
indispensable and cannot be separated. Their
association and inter-dependence mutually benefit
each other. Where MSMEs provide the much-needed
impetus at the grass root level, the economy protects
them, fulfills their needs and provides extra care at the
time of crisis (in the form of loans).

4. Indian Economy Depends A Lot on
MSMEs

Contribution of MSMEs to the economy is immense.
Not only do they contribute to the bigger picture like
GDP, they also help solve workforce employment crisis
to a large extent. So, what is there in MSMEs that
makes them so dependable and unshakable. First, it is
their nature of having a strong ground-connect. Having
connection to the roots and having direct connection
with the workforce is unique MSMEs. This gives boost
to the economy and provides it the necessary support.
Secondly, it is their nature to adapt to the changes.
Small industries are driven by a mix of sustenance and
profit motives. They do not hesitate to bring changes in
the process if they are assured that it would positively
impact their production. Besides, being highly savvy to
changes, Small businesses are the most flexible and
one of the most change-driven enterprises in the Indian
economy.

One of the pillars of Indian Economy

Indian economy basically depends on two sectors,
agriculture and manufacturing. While the first has
largely remained unorganized since the beginning, the
latter too has not been so till recently.

5. Manufacturing is handled by both small and big
industries. In a large number of cases, these small
enterprises feed raw material or semi-finished raw
material to the big ones. For example, Maruti Suzuki,
the largest Indian automobile manufacturer procures
finished automobile parts from several small
enterprises and assembles them in its vehicles. Thus,
the existence of a lot of big players largely depend on
SMEs. Thus, it can be said that the real players in the
Indian economy are the small enterprises and they hold
a prominent position.

Small Business Example:

The pandemic and then its subsequent second wave
has affected small businesses across India. On-ground
restrictions have further impacted several of their
processes. But Amazon’s Small Business Days 2021 is
a move to help these sellers get their businesses on
track. Amazon has enabled small businesses to reach
millions of customers across India by providing an
ecosystem for them to use. They have been empowered
to offer a superlative customer experience while helping
these local sellers increases.

These are just a few experiences of the many small
businesses that have found their path towards success

6. with Amazon’s dynamic ecosystem. While this health
crisis has paused the ambitions of many, the brand has
taken a step to iron out the impact of this pandemic with
its initiative, ‘Amazon Small Business Days’, starting
from July 2, 2021, midnight till 11:59 PM on July 4,
2021.
This three-day online sale is another step to back the
local economy. It is an attempt to enable these sellers to
achieve sustainability and expand their reach. This
initiative brings forward a message of hope,
encouragement and also acknowledges the resilience of
local sellers in these challenging circumstances.

During this event, consumers will be able to make the
most of deals and offers from small businesses, along
with an additional 5% off when purchasing two or more
products. The sale will also host themed stores like
home fitness supplies , monsoon essentials, regional
handicrafts etc. Small Business Days 2021 has a wide
expanse of unique and differentiated selection of
products, people can splurge on work-from-home
supplies , heritage handloom from some of the finest
weavers, amongst a host ..

7. Problems of by Small Businesses
1. Finance
The inadequacy of funds to funnel in the operations of a small
business prove to be a major hindrance to the development of the
small business. Small businesses lack the creditworthiness needed in
the capital market. Small businesses have a poor creditworthiness.
The banks and industrial investors need a collateral security, due to
most of the small businesses being operated in the rural and semi-
urban area, these businesses lack the collateral security to get finance
for their business.
2. Raw material
For the production purposes, the businesses need raw materials. To
get some output, they need to give some input. The quality of the raw
material completely depends upon the quality of input. But due to a
tight budget, these businesses are unable to get a good quality raw
material for their production.
3. Managerial skills
The operations of small businesses are carried out by a limited
number of employees. This means that a single person usually
manages the operations. The pressure on this manger is immense to
satisfy the demands of production. Also, the manager might lack
managerial skills required to operate a unit.

8. 4. Skilled labour
Due to a shortage of funds, small businesses are unable to hire the
proper candidate for the job. Also, they are not in a position to give
high wages to the employees. This results in the drop in productivity
per employee and rate of labour are high. This proves to be a major
obstruction in the operations of productions.
5. Marketing
Marketing is one of the most important links to sell whatever the
business plan to or has produced. Without marketing these businesses
will not be able to achieve their goal of sales they planned. Direct
marketing is not possible due to the lack of necessary infrastructure.
Solutions to Overcome The Problem

In the early stages, let that business be small or big, problems
do come. But all it depends on how one overcomes and tackles
different situations that appear no way. These are some
suggested solutions that one can adopt:
 Using online tools to keep a record for inventory, sales
receipts or any other important reports. This would help
managers to keep close attention to all the happenings in
the business.
 Time Management needs to be w ell planned before,
especially for small businesses. The reporting managers or
staff must closely look up timesheets of employees and
prepare some strategy for quick responses and work on
time.
 If possible, make one online store to mark digital visibility.
Nowadays, being digital is one of the most important
aspects. As everyone searches through online search
engines before buying or visiting any shop.

9.  Any business comes with plenty of risks. And sometimes
they are just more frequent than needed. So, insurances
play an effective role in managing the accidental damages
caused to any of the parts of the business. Insurance
promises safety for employees, staff, businesses, investors
and for customers too. Good coverage is always a good
friend for investors.

Parts of Small Business in India

Role and Contribution of SMEs in Indian
Economy

Background
Medium Small and Micro Enterprises (SMEs) have
always been the backbone of an economy in general
and secondary sector in particular. For a capital scarce
developing country like India, SMEs are considered as
panacea for several economic woes like unemployment,
poverty, income inequalities and regional imbalances.
The MSME Development act classifies manufacturing
units into medium, small and micro enterprises
depending upon the investment made in plant and
machinery. Any enterprise with investment in plant and
machinery of up to INR 50 million is considered as
medium enterprise while those having investment
between INR1.0 million to INR2.5 million is a small
enterprise and one with less than INR1.0 million is a
micro enterprise. In service sector, any enterprise with
the investment limit of INR1.0 million, between INR 1.0-

10. 20 million and of upto INR 50 million is called as micro,
small and medium enterprise respectively.

Contribution of MSMEs

The MSMEs have played a great role in ensuring
the socialistic goals like equality of income and
balance regional development as envisaged by the
planners soon after the independence. With the
meagre investment in comparison to the various
large scale private and public enterprises, the
MSMEs are found to be more efficient providing
more employment opportunities at relatively lower
cost. The employment intensity of MSMEs is
estimated to be four times greater than that of

11. large enterprises. Currently, around 36 million
SMEs are generating 80 million employment
opportunities, contributing 8% of the GDP, 45% of
total manufacturing output and 40% of the total
exports from the country. MSMEs account for
more than 80% of the total industrial enterprises in
India creating more than 8000 value added
products.
The most important contribution of SMEs in India
is promoting the balanced economic development.
The trickle down effects of large enterprises is very
limited in contrast to small industries where fruits
of percolation of economic growth are more
visible. While the large enterprises largely created
the islands of prosperity in the ocean of poverty,
small enterprises have succeeded in fulfilling the
socialistic goals of providing equitable growth. It
had also helped in industrialization of rural and
backward areas, thereby, reducing regional
imbalances, assuring more equitable distribution of
national income.Urban area with around 857,000
enterprises accounted for 54.77% of the total
working enterprises in Registered MSME sector
whereas in rural areas around 707,000 enterprises
(45.23% of the working enterprises) are located.
Small industries also help the large in industries by
supplying them ancillary products.

12. Challenges For MSMEs


The time ahead for the MSMEs in India is a reason to
worry. In the event of increasing globalization when
every now and then a free trade agreement is being
signed with a country or a region, MSMEs in India would
face cut throat competition from the technological
advanced industries of distant lands. In order to sustain
such competition, SMEs in India would need highly

13. skilled labour force along with timely redressal of
financial needs and technological up gradation.
Lack of timely and adequate credit to MSMEs is a major
obstacle for the growth of MSMEs. Relatively high cost
of credit, requirement of collateral and limited access to
equity capital often put such firms outside the net of
institutional credit. Other challenges encountering the
MSMEs include high cost of raw material, limited access
to global markets, lack of infrastructural facilities, limited
access to modern technology, lack of limited manpower,
stringent labour laws and unavailability of business
friendly environment.
In order to make SMEs stand erect in the event of stiff
competition from foreign enterprises, government should
introduce reforms in credit, marketing, labour,
rehabilitation and exit policy, infrastructure, technology
and skill development and taxation areas


Measures Taken For MSMEs Growth

Some of the measures taken by government to
improve the performance of MSMEs are as under
–
 Government has set up an India
Opportunities Venture Fund with SIDBI
worth INR 50 bn to provide equity to the
MSME sector.

14.  Under the Public Procurement Policy for
Micro and Small Enterprises (MSEs),
government organizations and Central
Public Sector Enterprises(CPSEs) are
required to make a minimum of 20% of their
annual purchase from MSMEs. Of this
purchase, 4% to be earmarked for
procurement from MSEs owned by SC/ST
entrepreneurs.
 To improve the productivity,
competitiveness and capacity building of
MSMEs, the Government of India has
adopted a cluster based approach.
 Credit disbursed to micro and small
enterprises is considered part of priority
sector lending by banks.
 Around 20 items have been reserved for
exclusive manufacturing by MSMEs. Large
scale enterprises cannot produce these
items.
 In order to build the capacity of MSMEs,
central government has initiated National
Manufacturing Competitiveness Programme
(NMCP). It would help them in facing stiff
competition from global MNCs.

15. Small Industries Service Institutes
(SISIs)

There are 28 SISIs and 30 Branch SISIs set up in State
capitals and other industrial cities all over the country.
The main activities of these institutions are as follows: -
Assistance / Consultancy to Prospective Entrepreneurs
- Assistance / Consultancy rendered to existing units
- Preparation of State Industries Profiles
- Preparation / Updating of District Industrial Potential
Surveys - Project Profiles
- Entrepreneurship Development Programmes
- Motivational Campaigns
- Production Index
- Management Development Programmes
- Skill Development Programmes
- Energy Conservation
- Pollution Control
- Quality Control & Up gradation
- Export Promotion - Ancillary Development
- Common Facility Workshop / Lab
- Preparation of Directory of Specific Industry
- Intensive Technical Assistance

16. - Coordination with DICs
- Linkage with State Govt. Functionaries
- Market Surveys
- Other Action Plan Activities assigned by Headquarters
SISIs and its Branches have common facility workshops
in various trades. There is at present 42 such common
facility workshops attached to SISIs / Branch SISIs.


Some Current Problems Worrying Small
Businessmen
1. Govt.regulation/ policy in general
2. Inflation
3. Taxes
4. Govt. paper works
5. Labour unions
6. High interest rates
7. Environmental restrictions
8. Lack of required capital
9. Minimum Wage Laws
10. Corruptive and bureaucratic officialdom
11. Seasonality in agricultural production and
interruptions in raw materials availability
12. Seasonality in demand for agricultural inputs
13. Lack of appropriate technology

17. Business Failure May Result From One or
More of the Following Weakness

1. Lack of business records
2. Lack of business experience
3. Insufficient stock-turnover
4. Uncollected Accounts receivables
5. Inventory shrinkage
6. Poor inventory control
7. Lack of finance
8. Improper mark-up
9. Lack of sales
10. Too much left to chance
11. Crucial obstacles go un-noticed through ignorance.

19. Impact of Covid-19 Pandemic
The MSMEs sector has been one of the most vulnerable sectors
during pandemic because of its size, scale of business and
availability of financial resources. Studies and surveys showed
that approximately 95% firms were impacted negatively due to
national lockdown imposed in April 2020, 70% of businesses
remained disrupted till August 2020. Even after progressive
unlocking, reports suggest that almost 40% businesses
remained interrupted till the end of February 2021. The three
critical barriers faced by MSMEs are market access, overall
productivity and getting access to more finances. An average
11% decline in business volume of Indian MSMEs has been
recorded because of lockdown in 2021 in comparison to 46%
decline during nationwide lockdown in year 2020.
The apparel manufacturing units of the export sector realised
business loss of over Rs. 150 crore from March 2020 to May
2020. Loss of India’s leather industries has been valued to be
Rs. 11,210 crore in global market. All India Manufacturers
Organisation conducted survey on MSMEs and confirmed that
the self-employed MSME units, predominantly 35% of
MSMEs sector, do not have any scope of recovery for their
businesses and have already started winding up their units.
According
Factors Responsible for Vulnerability of MSMEs
 Crunch of Capital – SMEs in India are largely
unorganized, most of the transactions carried by them are
in cash and not entered properly in accounting books. In
the absence of accurate transaction data, these businesses
do not get the mandatory credit score and find it difficult
to access business loans from the formal sector.

20. High Cost of Transaction – Business volumes of MSMEs
remain low in most of the cases and hence cost of transactions
remains high, both in offline and online modes of payment.
This affects company’s profit margin significantly in medium
to long run.
Risk perceptions by banks & financial institutions – In
absence of high credit score or collaterals, most of the banks
perceive MSMEs as risky clients. This problem amplifies when
the client is any start-up. Even if banks get convinced to
disburse loan, rate of interest remains higher than normal.
Different MSMEs have different financial requirements,
depending upon the size of business, cash flow pattern and
vendor engagements. All this requires tailor made services and
products.
Cybercrime – In absence of adequate awareness and knowledge
about handling digital banking and transaction activities, SMEs
are found to be more vulnerable for cybercrime and phishing.
Managing the Crisis
There is an urgent requirement for MSMEs to assess their
financial status and security. To support MSMEs during
pandemic crisis, government may come forward to provide soft
loans with longer term of repayment and increased credit limit.
MSMEs need to re-strategize its overall value proposition,
through improving quality of products, strengthening
distribution channels and using innovative promotion methods
etc. There is a need to create a strong digital ecosystem to
increase the outreach among buyers and suppliers in market.
Government of India started its e-market place (GeM) to
increase the share of MSMEs in Government procurement. A
digitally activated market ecosystem is capable to reduce cost,

21. improve work efficiency, foster product development and
improve safety of workers. Collaboration with research
institutions, tech start-ups, existing foreign players may prove
an effective business strategy for MSMEs to develop a low-cost
production base and penetrate in Indian market. Indian
Governments supportive programmes from SMEs like
Emergency Credit Line Guarantee Scheme, low repo rate, e-
market linkages, PF and EPF support for both businesses and
workers etc. have started showing positive results.
Latest edition of the Retail Business Survey by the Retailers
Association of India (RAI) reported retail sales in August 2021
were at 88% of the pre-pandemic levels (August 2019), as
against 72% in July 2021. Quick Service Restaurants (QSR)
showed signs of growth with 12% sales in August 2021 as
compared to August 2019 sales, while the food &
groceries category indicated a growth of 4%. However, beauty
& wellness, which includes salons, apparel, footwear and
jewellery were yet to catch up pre-pandemic sales figure.
Entrepreneurship survey highlighted that more than 60% small
businesses in India are confident about their business recovery
despite economic slowdown due to pandemic.

SSI – Pre Independence
1. Before Independence present small scale
industries were meant to denote village and
the urban cottage industry.
2. This group includes a variety of industries
ranging from manufacturing of iron safe , locks

22. , carpet, marblr , jigs ,basket,handlooms cloth
and like.
3. In fact, at that term cottage and small scale
industries was used in juxtaposition in large
scale industries which were established under
british patronage .
4. They received encouragement and support
during freedom movement
5. The small scale industries found a prominent
place in the economic programme envisaged
by the INDIAN NATIONAL CONGRESS .
SSI-POST INDEPENDENCE
AFTER 1947
JAWAHARLAL NEHRU maintained seprate entities for
small scale industries . he was of the view of that small
scale industries was middle sector and it would overlap
both cottage and large industries.
1977 INDUSTRIAL POLICY
the basic policy support of SSI sector had its root in
industrial policy Resolution 1977 laid emphasis on
reservation of item
the reservation economically viable and technology
feasible product to be extensively manufactured by
small scale industry began with a list of 47 itemwhich we
gradually extended to many item
at present there are 812 item are in reserved list

23. the limit on fixed capital investment for SSI was 7.5
lakhs and for anciliaries it was 10 lakhs . after the
industrial policy the ceiling for investment was raised to
60 lakhs and 70 lakhs for ancialiries.

Conclusion
Small businesses play an integral part in the economy of
the country and thus, their needs should be adhered to.
In the meantime, they can use online tools to gain more
attention from people. Digital tools have created a bridge
and these companies should make the most of it.
So role of smal business in rural India have both
advantages and disadvantages and they play an integral
part in our society. They also play a great role in

24. supporting the local community. This trend surely helps
eradicating unemployment in any economy.


Bibliography:-
www.google.com
Wikipedia.org
Byjus.com
Indian economic Development ( NCERT BOOK CLASS 12)