Small Business and Role of Small Business in Indian Economy

SMALL BUSINESS

The concept of small business has been defined by different countries in different ways. The two main criteria used to define small business are as follows

SIZE OF THE BUSINESS

Size refers to the scale of operations. Size may be measured in the following ways : -

a.Total capital investment

b.The value of total assets or fixed assets.

c.Total investment in plant and machinery

d.The total number of persons employed

e.Volume/value of production

f.Volume/value of sales turnover

g.A combination of above

Table 5.1 Bases of Defining small business in various countries

Criterion Countries

1. Investment in plant and machinery2. Employment3. Investment and employment4. Production/sales turnover5. Employment and sales turnover6. Investment and sales turnover

India, Pakistan, IndonesiaUSA and UKJapan, Korea and PhillipinesChina, UK (commercial)Korea (commerce)Malayasia

What is MSME ?Micro, Small or Medium Enterprise?The earlier concept of ‘Industries’ has been

changed  to ‘Enterprises’       •   Enterprises have been classified broadly into:            (i) Enterprises engaged in the                       Manufacture / production of                   Goods pertaining to any industry; &           (ii) Enterprises engaged in providing                     /  Rendering of services.

Manufacturing enterprises have been defined in terms of investment in   plant and machinery (excluding land & buildings)  and  further classified into :

   - Micro Enterprises  -  investment  up  to  Rs.25 lakh.

          - Small Enterprises  -  investment  above  Rs.25   

              lakh & up to Rs. 5 crore          - Medium Enterprises - 

investment  above  Rs. 5             crore & up to Rs.10 crore.

 Service   enterprises  have been   defined     in   

terms   of   their  investment   in equipment (excluding  land & buildings) and further classified into: 

        -   Micro Enterprises – investment up to         Rs.10 lakh.

        -   Small Enterprises – investment above       Rs.10 lakh & up to Rs.2 crore.

        -   Medium Enterprises–investment  above Rs.  2 crore  & up  to Rs.  5 crore 

Qualitative Criteria :Size does not always reflect the true

nature of an enterprise. Its characteristics differentiate between big and small business. These characteristics are :-

a.Ownershipb.Nature of managementc.Technologyd.Geographical area of operations

Definition of small business in India1. “An undertaking having an investment in plant and

machinery of not more than Rs. 5 crores.”

Now the government of India has raised the limit of Rs. 3 crores .In 1996, the official definition of small business was as follows:

i. Small Scale Industries

ii. Ancillary Industries

iii. Tint Units

iv. Small Scale Service Establishments

v. Household Industries

Role Of Small Business In Indian Economy1. Employment2. Optimisation Of Capital 3. Balanced Regional Development4. Mobilisation Of Local Resources5. Export Promotion 6. Consumer Surplus7. Feeder To Large Scale Industries8. Social Advantage9. Share In Industrial Production10.Development Of Entrepreneurship

IMPORTANCE OF SMALL BUSINESS

The small scale industries are playing an important role in the GDP of India. The small scale industries have nearly 40% share in the total industrial output and 35% share in exports

To increase employment. To prevent unequal distribution of

income. To develop capital investment.

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