Chapter 9 MSME and Business Entrepreneurship – Class 11 Business Studies Notes

 The Role of Small Scale Industries (SSI) and MSMEs in India

Small Scale Industries (SSIs) and Micro, Small, and Medium Enterprises (MSMEs) play a pivotal role in the socio-economic development of India. They contribute significantly to the GDP, accounting for 95% of industrial units and nearly 40% of the gross industrial value added in the country.
As the second largest employer after agriculture, these industries generate more employment per unit of capital invested, making them ideal for India’s labour-abundant and capital-scarce economy. SSIs and MSMEs supply a vast array of products, including both everyday consumer goods and sophisticated engineering products.
They support balanced regional development by utilising local resources and simple technologies, which allows for their distribution across the country without locational constraints. Furthermore, these industries foster entrepreneurship by enabling individuals to transform their skills and ideas into businesses with minimal capital.
They also benefit from low production costs due to lower establishment and operational expenses. The flexibility of SSIs and MSMEs facilitates quick decision-making and customised production, enhancing their competitiveness and ability to maintain personal relationships with customers and employees.

Short Pointers:

• SSIs and MSMEs account for 95% of industrial units in India, contributing about 40% to the industrial sector’s value-added and 45% to exports.
• They are the second-largest employment source in India, offering more jobs per unit of capital than larger industries.
• Provide a wide range of products, from consumer goods like soaps and garments to sophisticated items like electronics and pharmaceuticals.
• Promote balanced regional development by being spread across the country, utilising local materials and labour.
• Encourage entrepreneurship with minimal capital investment and formalities.
• Enjoy low production costs due to reduced establishment and operational expenses, enhancing their competitive edge.
• Capable of quick decision-making due to their small size, allowing for timely capitalization on business opportunities.
• Suited for customised production due to their flexible production techniques.

Problems Facing Small Scale Industries (SSI) and MSMEs

Small Scale Industries (SSIs) and Micro, Small, and Medium Enterprises (MSMEs) in both urban and rural areas face several operational and structural challenges that hinder their full potential.
These challenges arise due to their limited scale of operations, difficulties in accessing finance, inability to adopt modern technology, and issues in procuring raw materials. The location of these enterprises often comes with less developed infrastructure, contributing to their logistical and operational difficulties.
Furthermore, SSIs and MSMEs struggle with managerial inefficiencies, reliance on outdated technology, and poor quality of output. Financial constraints are a significant barrier, affecting their ability to sustain and grow. Exporting units within this sector face additional problems, such as inadequate information on foreign markets, lack of market intelligence, exposure to exchange rate fluctuations, adherence to international quality standards, and securing pre-shipment finance.

Short Pointers:

• SSIs and MSMEs face operational and structural challenges due to their limited scale.
• Access to finance is a major hurdle, affecting their ability to upgrade technology and procure materials.
• Infrastructure issues, especially in remote locations, impact their operational efficiency.
• Managerial skills are often lacking, coupled with reliance on traditional technology and issues with product quality.
• Exporting units face challenges like insufficient data on foreign markets, exchange rate fluctuations, and meeting international quality standards.
• Financial constraints limit their growth potential and ability to compete on a larger scale.

5. Give any two characteristics of entrepreneurship development.

Answer: Entrepreneurship development is systematic and purposeful, requiring skills and competencies that are learned through experience and training, focusing on creating value and innovation.

Short Answer Questions

1. What is MSME?

Answer: Micro, Small, and Medium Enterprises (MSMEs) are crucial to the economic and industrial development of India. They significantly contribute to the nation’s GDP and exports, and are the second-largest employers after agriculture. MSMEs not only foster entrepreneurship and innovation using local skills and materials but also play a vital role in rural industrialisation and achieving self-reliance. The government recognizes their potential and supports them through various phases of economic reforms. Moreover, MSMEs produce a diverse range of products, from basic consumer goods to sophisticated items, enhancing India’s manufacturing capabilities on a global scale.

Mindmap to remember this answer:

• Definition: Small to medium size enterprises; crucial for economic growth.

• Contributions:

• • • 29.7% of GDP.
    • 49.66% exports.
    • Employment for 60 million people.

• Roles:

• • Entrepreneurship and innovation.
  • Rural industrialisation and self-reliance.
  • Diverse product range.
• Government Support: Encouragement in pre- and post-reform periods.
• Products: From simple consumer goods to complex manufactured items.
• Significance: Second largest employer; vital for balanced regional development.

 What percentage of exports do MSMEs contribute in India?

Answer: C) 49.66%

• MSMEs are primarily categorised into how many subgroups?

Answer: C) 8

• Which of the following is not a problem commonly faced by MSMEs?

Answer: A) High cost of production

• The definition of MSMEs in India is based on which parameters?

Answer: B) Investment in plant and machinery and turnover

• Which of the following is not part of the Intellectual Property Rights recognized in India?

Answer: D) Smell and taste trademarks

5. What is the definition of MSME according to the Government of India?
   Answer: MSMEs are defined by their investment in plant and machinery and turnover.
6. What is the purpose of the MSMED Act, 2006?
   Answer: The purpose of the MSMED Act, 2006 is to provide a single legal framework for MSMEs addressing issues like credit and technology upgradation.
7. What significant roles do MSMEs play in the socio-economic development of India?
   Answer: MSMEs play significant roles in employment generation, promoting balanced regional development, and fostering entrepreneurship.
8. What percentage of industrial units does the small industries sector comprise in India?
   Answer: Small industries make up 95% of all industrial units in India.
9. What is the primary benefit of MSMEs in terms of employment?
   Answer: The primary benefit of MSMEs in terms of employment is their labour-intensive nature, creating more jobs per unit of capital invested.
10. Name a sophisticated item produced by MSMEs.
    Answer: MSMEs produce sophisticated items like electronic goods and pharmaceuticals.
11. What challenges do MSMEs face in terms of raw material procurement?
    Answer: A major challenge for MSMEs in raw material procurement is the high cost and low bargaining power due to small purchase quantities.

2. How do MSMEs contribute to India’s GDP and exports?
   Answer: MSMEs contribute significantly to India’s economy by making up 29.7% of the GDP and accounting for nearly half of the exports at 49.66%. They enhance economic resilience by promoting local entrepreneurship and using indigenous resources efficiently.

Mindmap to remember this answer

• GDP Contribution: 29.7%
• Exports: 49.66%
• Economic Impact: Enhance resilience, promote local entrepreneurship

3. Explain the role of MSMEs in employment generation compared to other sectors.
   Answer: Compared to other sectors, MSMEs are vital for employment in India, providing jobs to about 60 million people through 28.5 million enterprises. They are second only to agriculture in employment generation, offering more job opportunities per unit of capital invested than larger industries.

Mindmap to remember this answer

• Employment Numbers: 60 million people
• Comparison: Second to agriculture
• Job Efficiency: More jobs per capita than large industries

4. Describe the various subgroups within the MSME sector as outlined in the textbook.
   Answer: The MSME sector in India includes both traditional and modern small industries, divided into eight subgroups: handlooms, handicrafts, coir, sericulture, khadi and village industries, small scale industries, and powerlooms. Each subgroup contributes uniquely to the sector’s diversity and strength.

Mindmap to remember this answer

• Subgroups: Handlooms, handicrafts, coir, etc.
• Categories: Traditional and modern industries
• Contribution: Diverse strengths

 Definition and Importance of MSMEs in India

Case:
XYZ Services is a small enterprise that provides IT solutions and services. It operates under the definition provided by the MSMED Act of 2006. Discuss the significance of the MSMED Act for XYZ Services and the values it embodies.

Answer:
The MSMED Act of 2006 is significant for XYZ Services as it provides a unified legal framework that addresses definitions, credit availability, marketing, and technology upgradation for MSMEs. This act supports XYZ Services in accessing finance, adopting modern technology, and competing in the market.

Values embodied by the MSMED Act:

1. Legal Clarity: Provides a clear definition and regulatory framework for MSMEs.
2. Financial Support: Facilitates better access to finance.
3. Technological Advancement: Encourages the adoption of modern technology.
4. Market Competitiveness: Enhances the ability to compete in the market.
5. Inclusive Growth: Supports the growth and development of service-oriented MSMEs.

The Role of Small Scale Industries (SSI) and MSMEs in India

Case:
ABC Industries is a small-scale manufacturing unit that produces consumer goods and operates in a semi-urban area. Explain how ABC Industries contributes to regional development and entrepreneurship. What values are communicated by such contributions?

Answer:
ABC Industries contributes to regional development by utilising local resources and employing local labour, which helps in spreading industrial activities across the semi-urban area. The unit also promotes entrepreneurship by enabling individuals to start and run businesses with minimal capital investment.

Values communicated by ABC Industries:

1. Regional Development: Utilisation of local resources and spreading industrial activities.
2. Employment Generation: Providing jobs to the local population.
3. Entrepreneurship Promotion: Facilitating the start and growth of new businesses.
4. Product Diversity: Supplying a range of consumer goods.
5. Cost Efficiency: Benefiting from low production costs due to reduced establishment and operational expenses.

Problems Facing Small Scale Industries (SSI) and MSMEs

Case:
DEF Handicrafts is a small-scale enterprise facing several operational challenges, including difficulty accessing finance and procuring raw materials. Discuss the major challenges DEF Handicrafts faces and their impact. What values are at risk due to these challenges?

Answer:
DEF Handicrafts faces operational challenges such as limited access to finance, difficulty in adopting modern technology, and issues in procuring raw materials. These challenges hinder their operational efficiency and growth potential.

Values at risk due to these challenges:

1. Operational Efficiency: Affected by inadequate infrastructure and financial constraints.
2. Technological Advancement: Limited by the inability to adopt modern technology.
3. Quality and Competitiveness: Hindered by reliance on outdated technology.
4. Market Access: Challenged by insufficient information on foreign markets.
5. Sustainability: Financial constraints affect the growth potential and sustainability of the enterprise.

 Definition and Importance of MSMEs in India

Question:
The MSME Development (MSMED) Act of 2006 unified the definition of MSMEs and addressed various issues. In this context, explain the significance of the MSMED Act for MSMEs. Identify the value promoted by this Act.

Answer:
The MSMED Act of 2006 is significant for MSMEs as it addresses globalisation and technological advancements, providing a unified legal framework for definitions, credit availability, marketing, and technology upgradation for both manufacturing and service sectors. This Act reflects India’s socio-economic conditions, recognizing the importance of scarce capital and abundant labour.

Values promoted by the MSMED Act:

1. Unified Legal Framework: Provides clarity and uniformity in the definition and regulation of MSMEs.
2. Credit Availability: Facilitates better access to finance for MSMEs.
3. Technological Advancement: Encourages the adoption of modern technology.
4. Economic Inclusivity: Recognizes the importance of the service sector and includes it within the MSME category.
5. Support for Growth: Aims to enhance the overall development and competitiveness of MSMEs.

The Role of Small Scale Industries (SSI) and MSMEs in India

Question:
Small Scale Industries (SSIs) and MSMEs play a pivotal role in India’s socio-economic development. Discuss how they contribute to regional development and entrepreneurship. Identify the value communicated by SSIs and MSMEs.

Answer:
SSIs and MSMEs contribute significantly to regional development by utilising local resources and simple technologies, which allow them to be distributed across the country without locational constraints. They support balanced regional development and promote entrepreneurship by enabling individuals to start businesses with minimal capital.

Values communicated by SSIs and MSMEs:

1. Regional Development: Utilisation of local resources and spreading industrial activities across various regions.
2. Employment Generation: Providing the second largest source of employment after agriculture.
3. Entrepreneurship Encouragement: Facilitating the transformation of skills and ideas into businesses.
4. Product Diversity: Supplying a vast array of products, from consumer goods to sophisticated engineering products.
5. Cost Efficiency: Benefiting from low production costs due to lower establishment and operational expenses.

Problems Facing Small Scale Industries (SSI) and MSMEs

Question:
Small Scale Industries (SSIs) and MSMEs face numerous challenges that hinder their potential. Discuss the major challenges and their impact on these industries. Identify the values at risk due to these challenges.

Answer:
SSIs and MSMEs face several operational and structural challenges, including limited scale of operations, difficulties in accessing finance, inability to adopt modern technology, and issues in procuring raw materials. These challenges hinder their full potential and impact their operational efficiency.

Values at risk due to these challenges:

1. Operational Efficiency: Affected by inadequate infrastructure and financial constraints.
2. Technological Advancement: Limited by the inability to adopt modern technology.
3. Quality and Competitiveness: Hindered by managerial inefficiencies and reliance on outdated technology.
4. Market Access: Challenged by insufficient information on foreign markets and meeting international quality standards.
5. Sustainability: Financial constraints affect the growth potential and sustainability of these units.

2. Explain the complementary relationship between MSMEs and large industries. How do MSMEs function as ancillary units and what benefits do they bring to the value chain in terms of local raw materials and indigenous skills?
   Answer: MSMEs play a crucial role as ancillary units to large industries, forming an integral part of the industrial value chain. These enterprises support large industries by supplying various components, specialised services, and finished goods, which are essential for the production processes of larger corporations. By utilising local raw materials and harnessing indigenous skills, MSMEs contribute to the preservation of local crafts and reduce the dependency on imported materials, fostering a sustainable economic environment and promoting local employment.

Mindmap to remember this answer:

• Function: Supply components and services to large industries
• Benefits: Utilise local raw materials, preserve indigenous skills
• Impact: Reduce import dependency, foster sustainability and local employment

3. Considering the various types of enterprises under the MSME umbrella in India, describe the specific roles and contributions of traditional and modern industries, such as handlooms, handicrafts, and small scale industries.
   Answer: In India, MSMEs encompass a wide range of both traditional and modern small industries, including handlooms, handicrafts, coir, sericulture, and small scale industries. These sectors are crucial for the economic inclusion of diverse regions and communities, providing employment and sustaining traditional crafts. Handlooms and handicrafts, for instance, not only support cultural heritage but also contribute to the tourism and export sectors due to their unique, locally-inspired products.

Mindmap to remember this answer:

• Sectors: Handlooms, handicrafts, coir, sericulture
• Roles: Employment, sustain traditional crafts
• Contributions: Support cultural heritage, boost tourism and exports

4. Analyse the government’s strategies to promote MSMEs in the pre-reform and post-reform periods. What objectives were aimed at through these initiatives, particularly concerning self-reliance and rural industrialisation?
   Answer: The Indian government has actively promoted MSMEs through various reforms and policies aimed at enhancing self-reliance and fostering rural industrialisation. Pre-reform initiatives focused on providing subsidies and financial support, whereas post-reform policies have emphasised technology upgradation, skill development, and global market integration. These strategic efforts aim to empower MSMEs, enabling them to compete effectively both in national and international arenas.

Mindmap to remember this answer:

• Pre-Reform: Subsidies, financial support
• Post-Reform: Technology upgradation, skill development
• Objective: Enhance self-reliance, foster rural industrialisation