NCERT Class 11 Business Studies Chapter 9 PDF

CHAPTER 9 S MALL BUSINESS AND ENTREPRENEURSHIP LEARNING OBJECTIVES After studying this chapter, you should be able to: explain the meaning and nature of small business; appreciate the role of small business in India; analyse the problems of small business;...

CHAPTER 9 S MALL BUSINESS AND ENTREPRENEURSHIP LEARNING OBJECTIVES After studying this chapter, you should be able to: explain the meaning and nature of small business; appreciate the role of small business in India; analyse the problems of small business; and classify the different forms of assistance provided by the government to small business, particularly in rural and hilly areas. 2019-20 212 BUSINESS STUDIES Romi Bags of Manipur Khumbongmayum Dhanachandra Singh didn't have much in life. The son of a poor tailor, he wasn't brought up with many privileges. He saw his father working day and night to earn a meager income. He saw the rich getting richer and the poor remaining poor. The boy wanted to do something more in life. He couldn't imagine a life of stitching clothes relentlessly and earn just enough to survive. Imphal is a small city. Hardworking men and women send their children away to bigger cities so they can have opportunities to progress. Khumbongmayum's father couldn't afford to send him or even educate him. He just taught him what he knew- tailoring. Fabrics, stitching and clothing styles was what the boy grew up with. There was only one sewing machine and the boy used it when his father wasn't using it. He learnt it silently because he knew it was what his father wanted but his heart wasn't in it. Sometimes an incisdenr can change your life. This happened to Khumbongmayum when he stitched a purse made out of leftover fabrics from his father's scraps. Khumbongmayum offered the purse to his friend who marveled at the unique design. The friend in turn showed the interesting purse to his other friends. They asked Khumbongmayum if he could make such purses for them. It led him to wonder if there was a market for his designs. And he knew he had stumbled on to his business venture. He made a business plan and launched a purse making company 'Romi Bags' in 1996. Khumbongmayum was not one to do anything on a whim. He noticed the demands of his product and he calculated his costs, expenses and expected income. He ignored the detractors and critics. As a first time entrepreneur, he believed in whatever quality of materials he was getting. This was his biggest mistake. The cheap quality of materials for shoes led to them being rejected by the consumers. Stock was returning and remaining unsold in the factory. Khumbongmayum learnt his first lesson. In 2007, he received the National Award for in Bag Making for Micro & Medium Enterprises. For him though, it's just the beginning. Khumbongmayum Dhanchandra Singh has changed his life by sheer grit, perseverance and hard work. You can't let anything stop you from moving forward. You can't become successful or reach the top in a day. ew if you listen and hear effectively. 9.1 INTRODUCTION Small scale industries dominate the industrial scenario in the country with Small scale industries contribute sizeable proportion of labour force and significantly to the development tremendous export potential. process and acts as a vital link in the In India, the 'village and small industrialisation in terms of industries sector' consists of both production, employment and exports 'traditional' and 'modern' small for economic prosperity by widening industries. This sector has eight entrepreneurial base and use of local subgroups. They are handlooms, raw materials and indigenous skills. handicrafts, coir, sericulture, khadi 2019-20 SMALL BUSINESS AND ENTREPRENEURSHIP 213 and village industries, small scale competitive in a fast globalizing world. industries and powerlooms. The last Thus, it was necessary to address the two come under the modern small concerns of such enterprises micro, industries, while the others come under small and medium and provide them traditional industries. Village and small with a single legal framework. The industries together provide the largest Micro, Small and Medium Enterprises employment opportunities in India. Development (MSMED) Act, 2006 addresses these issues relating to 9.2 TYPES OF SMALL BUSINESS definition, credit, marketing and It is important to know how size is technology up gradation. Medium scale defined in our country, with reference enterprises and service related to small industries and small business enterprises also come under the establishments. Several parameters can purview of this Act. The MSMED Act, be used to measure the size of business 2006 came into force w.e.f., October, units. These include the number of 2006. persons employed in business, capital Accordingly, enterprises are invested in business, volume of output classified into two major categories viz., or value of output of business and manufacturing and services. power consumed for business activities. However, there is no 9.2.1 Manufacturing parameter which is without limitations. Depending on the need, the measures In the case of enterprises engaged in can vary. the manufacture or production of The definition used by the goods pertaining to any industries Government of India to describe small specified in the first schedule to the industries is based on the investment Industries (Development and in plant and machinery. This measure Regulation) Act, 1951, there are three seeks to keep in view the socio- types of enterprises: economic environment in India where (i) Micro enterprise: where the capital is scarce and labour is abundant. investment in plant and machinery does The emergence of a large services not exceed twenty-five lakh rupees. sector has necessitated the government (ii) Small enterprise: where the to include other enterprises covering both Small Scale Industries (SSI) sector investment in plant and machinery is and related service entities under the more than twenty five lakh rupees but same umbrella. Expansion of the small does not exceed five crore rupees. scale enterprises was taking place (iii) Medium enterprise: where the growing into medium scale enterprises investment in plant and machinery is and they were required to adopt higher more then five crore rupees but does levels of technologies in order to remain not exceed ten crores rupees. 2019-20 214 BUSINESS STUDIES 9.2.2 Services normally use family labour and locally available talent; In the case of enterprises engaged in the equipment used is simple; providing or rendering of services there capital investment is small; are three types of enterprises: produce simple products, normally (i) Micro enterprise: where the in their own premises; investment in equipment does not production of goods using exceed ten lakh rupees. indigenous technology. (ii) Small enterprise: where the investment in equipment is more than 9.3 ROLE OF SMALL BUSINESS IN INDIA ten lakh rupees but does not exceed Small Scale Industries in India enjoy a two crore rupees. distinct position in view of their (iii) Medium enterprise: where the contribution to the socio-economic investment in equipment is more than development of the country. The following points highlight their two crore rupees but does not exceed contribution. five crore rupees. (i) The contribution of small industries to the balanced regional 9.2.3 Village Industries development of our country is Village industry has been defined as noteworthy. Small industries in India any industry located in a rural area account for 95 per cent of the industrial which produces any goods, renders any units in the country. service with or without the use of power (ii) Small industries are the second and in which the fixed capital largest employers of human resources, investment per head or artisan or after agriculture. They generate more worker is specified by the central number of employment opportunities government, from time to time. per unit of capital invested compared to large industries. They are, therefore, 9.2.4 Cottage Industries considered to be more labour intensive and less capital intensive. This is a Cottage industries are also known as boon for a labour surplus country like Rural Industries or T raditional India. Industries. They are not defined by (iii) Small industries in our country capital investment criteria as in the case supply an enormous variety of of other small scale industries. products which include mass However, cottage industries are consumption goods, readymade characterized by certain features like garments, hosiery goods, stationery the following: items, soaps and detergents, domestic these are organised by individuals, utensils, leather, plastic and rubber with private resources; goods, processed foods and vegetables, 2019-20 SMALL BUSINESS AND ENTREPRENEURSHIP 215 wood and steel furniture, paints, Locally available resources are less varnishes, safety matches, etc. Among expensive. Establishment and running the sophisticated items manufactured costs of small industries are on the are electric and electronic goods like lower side because of low overhead televisions, calculators, electro-medical expenses. Infact, the low cost of equipment, electronic teaching aids like production which small industries overhead projectors, air conditioning enjoy is their competitive strength. equipment, drugs and (vii) Due to the small size of the pharmaceuticals, agricultural tools organisations, quick and timely and equipment and several other decisions can be taken without engineering products. A special consulting many people as it happens mention should be made of in large sized organisations. New handlooms, handicrafts and other business opportunities can be products from traditional village captured at the right time. industries in view of their export value. (see Box A which highlights the major 9.4 ROLE OF SMALL BUSINESS IN industry groups that come under the RURAL INDIA purview of small industries as per the classification laid down by the Traditionally, rural households in government.) developing countries have been viewed (iv) Small industries which produce as exclusively engaged in agriculture. simple products using simple There is an increasing evidence that technologies and depend on locally rural households can have highly available resources both material and varied and multiple sources of income labour can be set up anywhere in the and that, rural households can and do country. Since they can be widely participate in a wide range of non- spread without any locational agricultural activities such as wage constraints, the benefits of employment and self-employment in industrialisation can be reaped by commerce, manufacturing and every region. They, thus, contribute services, along with the traditional rural significantly to the balanced activities of farming and agricultural development of the country. labour. This can be largely attributed (v) Small industries provide ample to the policy initiatives taken by the opportunity for entrepreneurship. The Government of India, to encourage and latent skills and talents of people can promote the setting up of agro-based be channeled into business ideas rural industries. which can be converted into reality The emphasis on village and small with little capital investment and almost scale industries has always been an nil formalities to start a small business. integral part of India's industrial (vi) Small industries also enjoy the strategy, more so, after the second Five advantage of low cost of production. Year Plan. Cottage and rural industries 2019-20 216 BUSINESS STUDIES play an important role in providing scale industries. The scale of employment opportunities in the rural operations, availability of finance, areas, especially for the traditional ability to use modern technology, artisans and the weaker sections of procurement of raw materials are some society. Development of rural and of these areas. This gives rise to several village industries can also prevent problems. migration of rural population to urban Most of these problems can be areas in search of employment. attributed to the small size of their Village and small industries are business, which prevents them from significant as producers of consumer taking advantages, which accrue to goods and absorbers of surplus labour, large business organisations. However, thereby addressing the problems of the problems faced are not similar to poverty and unemployment. These all the categories of small businesses. industries contribute amply to other For instance, in the case of small socio-economic aspects, such as ancillary units, the major problems reduction in income inequalities, include delayed payments, uncertainty dispersed development of industries of getting orders from the parent units and linkage with other sectors of the and frequent changes in production economy. processes. The problems of traditional In fact promotion of small scale small scale units include remote industries and rural industrialisation location with less developed has been considered by the infrastructural facilities, lack of Government of India as a powerful managerial talent, poor quality, instrument for realising the twin traditional technology and inadequate objectives of 'accelerated industrial availability of finance. growth and creating additional The problems of exporting small productive employment potential in scale units include lack of adequate rural and backward areas.' data on foreign markets, lack of market intelligence, exchange rate However, the potential of small fluctuations, quality standards, and industries is often not realised fully, pre-shipment finance. In general the because of several problems related to small businesses are faced with the size. We shall now examine some of the following problems: major problems that small businesses ( i ) F i n a n c e : One of the severe whether in urban or in rural areas are problems faced by SSIs is that of non- encountering in their day-to-day availability of adequate finance to carry functioning. out its operations. Generally a small business begins 9.5 PROBLEMS OF SMALL BUSINESS with a small capital base. Many of the Small scale industries are at a distinct units in the small sector lack the credit disadvantage as compared to large worthiness required to raise as capital 2019-20 SMALL BUSINESS AND ENTREPRENEURSHIP 217 from the capital markets. As a result, Moreover, they may not find they heavily depend on local financial enough time to take care of all resources and are frequently the functional activities. At the same time victims of exploitation by the money they are not in a position to afford lenders. These units frequently suffer professional managers. from lack of adequate working capital, (iv) Labour: Small business firms either due to delayed payment of dues cannot afford to pay higher salaries to to them or locking up of their capital in the employees, which affects employee unsold stocks. Banks also do not lend willingness to work hard and produce money without adequate collateral more. Thus, productivity per employee security or guarantees and margin is relatively low and employee turn over money, which many of them are not in is generally high. Because of lower a position to provide. remuneration offered, attracting (ii) Raw materials: Another major talented people is a major problem in problem of small business is the small business organisations. procurement of raw materials. If the Unskilled workers join for low required materials are not available, remuneration but training them is a they have to compromise on the quality time consuming process. Also, unlike or have to pay a high price to get good large organisations, division of labour quality materials. Their bargaining cannot be practised, which results in power is relatively low due to the small lack of specialisation and concentration. quantity of purchases made by them. (v) Marketing: Marketing is one of the Also, they cannot afford to take the risk most important activities as it generates of buying in bulk as they have no revenue. Effective marketing of goods facilities to store the materials. Because requires a thorough understanding of of general scarcity of metals, chemicals the customer's needs and and extractive raw materials in the requirements. In most cases, marketing economy, the small scale sector suffers is a weaker area of small organisations. the most. This also means a waste of These organisations have, therefore, to production capacity for the economy depend excessively on middlemen, who and loss of further units. at times exploit them by paying low (iii) M a n a g e r i a l s k i l l s : Small price and delayed payments. Further, business is generally promoted and direct marketing may not be feasible operated by a single person, who may for small business firms as they lack not possess all the managerial skills the necessary infrastructure. required to run the business. Many of (vi) Quality: Many small business the small business entrepreneurs organisations do not adhere to desired possess sound technical knowledge standards of quality. Instead they but are less successful in marketing concentrate on cutting the cost and the output. keeping the prices low. They do not 2019-20 218 BUSINESS STUDIES have adequate resources to invest in feel threatened with the onslaught of quality research and maintain the global competition. standards of the industry, nor do they (a) Competition is not only from have the expertise to upgrade medium and large industries, but also technology. In fact maintaining quality from multinational companies which is their weakest point, when competing are giants in terms of their size and in global markets. business volumes. Opening up of trade (vii) Capacity utilisation: Due to lack results in cut throat competition for of marketing skills or lack of demand, small scale units. many small business firms have to (b) It is difficult to withstand the operate below full capacity due to quality standards, technological skills, which their operating costs tend to financial creditworthiness, managerial increase. Gradually this leads to and marketing capabilities of the large sickness and closure of the business. industries and multinationals. (viii) Technology: Use of outdated (c) There is limited access to technology is often stated as serious markets of developed countries due to lacunae in the case of small industries, the stringent requirements of quality resulting in low productivity and certification like ISO 9000. uneconomical production. (ix) Sickness: Prevalence of sickness 9.6 G OVERNMENT A SSISTANCE TO in small industries has become a point S MALL BUSINESS UNITS of worry to both the policy makers and the entrepreneurs. The causes of Keeping in view the contribution of sickness are both internal and external. small business to employment Internal problems include lack of generation, balanced regional skilled and trained labour and development of the country, and managerial and marketing skills. Some promotion of exports, the Government of the external problems include of India's policy thrust has been on delayed payment, shortage of working establishing, promoting and capital, inadequate loans and lack of developing the small business sector, demand for their products. particularly the rural industries and (x) Global competition: Apart from the cottage and village industries in the problems stated above small backward areas. Governments both at businesses are not without fears, the central and state level have been especially in the present context of actively participating in promoting liberalisation, privatisation and self-employment opportunities in globalisation (LPG) policies being rural areas by providing assistance in followed by several countries across the respect of infrastructure, finance, world. Remember, India too has taken technology, training, raw materials, the LPG path since 1991. Let us look and marketing. The various policies into the areas where small businesses and schemes of Government assistance 2019-20 SMALL BUSINESS AND ENTREPRENEURSHIP 219 for the development of rural industries processing, soft toys making, ready- insist on the utilisation of local made garments, candle making, resources and raw materials and incense stick making, two-wheeler locally available manpower. These are repairing and servicing, translated into action through various vermicomposting, and non agencies, departments, corporations, conventional building materials. etc., all coming under the purview of the industries department. All these 3. National Small Industries are primarily concerned with the Corporation (NSIC) promotion of small and rural industries. National Small Industries Corporation Some of the support measures and wasset up in 1955 with a view to programmes meant for the promotion promote, aid and foster the growth of of small and rural industries are : small business units in the country. This focuses on the commercial aspects 1. National Bank for Agriculture of these functions. and Rural Development (i) Supply indigenous and imported (NABARD): machines on easy hire-purchase terms. National Bank for Agriculture and (ii) Procure, supply and distribute Rural Development was setup in 1982 indigenous and imported raw to promote integrated rural materials. development. Apart from agriculture, (iii) Export the products of small it supports small industries, cottage business units and develop and village industries, and rural export-worthiness. artisans using credit and non-credit (iv) Mentoring and advisory services. approaches. It offers counselling and (a) Serve as technology business consultancy services and organises Incubators. training and development programmes (b) Creating awareness on for rural entrepreneurs. technological upgradation. (c) Developing software 2. The Rural Small Business technology parks and Development Centre (RSBDC) technology transfer centres. The Rural Small Business Development Centre is sponsored by NABARD. It 4. Rural and Women works for the benefit of socially and Entrepreneurship economically disadvantaged Development (RWED) individuals and groups. Through its The Rural and Women programmes it covers a large number Entrepreneurship Development of rural unemployed youth and women programme aims at promoting a in several trades, which includes food conducive business environment and 2019-20 220 BUSINESS STUDIES at building institutional and human 6. The District Industries Centers capacities that will encourage and (DICs) support the entrepreneurial initiatives The District Industries Center was of rural people and women. RWE launched on 1 May 1978, with a view provides the following services: to providing an integrated (i) Creating a business environment administrative framework at the district that encourages initiatives of rural level, which would look at the problems and women entrepreneurs. of industrialisation in the district, in a (ii) Enhancing the human and composite manner. Identification of institutional capacities required to suitable schemes, preparation of foster entrepreneurial dynamism feasibility reports, arranging for credit, and enhance productivity. machinery and equipment, provision of (iii) Providing training manuals for raw materials and other extension women entrepreneurs and services are the main activities training them. undertaken by these centers. (iv) Rendering any other advisory services. 9.7 E NTREPRENEURSHIP D EVELOPMENT 5. Scheme of Fund for Regeneration of Traditional Entrepreneurship is the process of Industries (SFURTI) setting up one's own business as distinct from pursuing any other To make the traditional industries economic activity, be it employment or more productive and competitive and practising some profession. The person to facilitate their sustainable who set-up his business is called an development, the Central Government entrepreneur. The output of the set up in the year 2005. The main process, that is, the business unit is objectives of the scheme are as follows: called an enterprise. It is interesting to (i) To develop clusters of traditional note that entrepreneurship besides industries in various parts of the providing self-employment to the country; entrepreneur is responsible to a great (ii) To build innovative and traditional extent for creation and expansion of skills, improve technologies and opportunities for the other two encourage public-private economic activities, that is, employment partnerships, develop market and profession. And, in the process, intelligence etc., to make them entrepreneurship becomes crucial for competitive, profitable and overall economic development of a sustainable; and nation.When you make this choice, you (iii) To create sustained employment become a job-provider rather than a opportunities in traditional job-seeker, besides enjoying a host of industries. other financial and psychological 2019-20 SMALL BUSINESS AND ENTREPRENEURSHIP 221 rewards. Taking to entrepreneurship is are shrinking, and on the other, vast surely more a matter of aspiring to opportunities arising from globalisation become an entrepreneur rather as are waiting to be exploited; being born as one. We would like to entrepreneurship can really take India define entrepreneurship as a to the heights of becoming a super systematic, purposeful and creative economic power. Thus, the need for activity of identifying a need, mobilising entrepreneurship arises from the resources and organising production functions the entrepreneurs perform in with a view to delivering value to the relation to the process of economic customers, returns for the investors development and in relation to the and profits for the self in accordance business enterprise. with the risks and uncertainties The following are the characteristics associated with business. This of entrepreneurship: definition points to certain (i) Systematic Activity: characteristics of entrepreneurship that Entrepreneurship is not a mysterious we turn our attention to. gift or charm and something that Entrepreneurship does not emerge happens by chance! It is a systematic, spontaneously. Rather, it is the step-by-step and purposeful activity. outcome of a dynamic process of It has certain temperamental, skill and interaction between a person and his/ other knowledge and competency her environment. Ultimately, the choice requirements that can be acquired, of entrepreneurship as a career lies learnt and developed, both by formal with an individual, yet he/she must see educational and vocational training as it as a desirable, as well as, a feasible well as by observation and work option. In this regard, it becomes experience. Such an understanding of imperative to look at both-factors in the the process of entrepreneurship is environment, as well as, factors in the crucial for dispelling the myth that individual's perception of desirability entrepreneurs are born rather than and feasibility. made. (ii) Lawful and Purposeful Activity: 9.7.1 Characteristics of The object of entrepreneurship is lawful Entrepreneurship business. It is important to take note of this as one may try to legitimise Every country, whether developed or unlawful actions as entrepreneurship developing, needs entrepreneurs. on the grounds that just as Whereas, a developing country needs entrepreneurship entails risk, so does entrepreneurs to initiate the process of illicit businesses. Purpose of development, the developed one needs entrepreneurship is creation of value entrepreneurship to sustain it. In the for personal profit and social gain. present Indian context, where on the (iii) Innovation: From the point of view one hand, employment opportunities of the firm, innovation may be cost in public sector and large-scale sector 2019-20 222 BUSINESS STUDIES saving or revenue-enhancing. If it does to a perceived business opportunity both it is more than welcome. Even if it mobilises these resources into a does none, it is still welcome as productive enterprise or firm. It may be innovation must become a habit! pointed out that the entrepreneur may Entrepreneurship is creative in the not be possessing any of these sense that it involves creation of value. resources; he may just have the 'idea' By combining the various factors of that he promotes among the resource production, entrepreneurs produce providers. In an economy with a well- goods and services that meet the needs developed financial system, he has to and wants of the society. Every convince just the funding institutions entrepreneurial act results in income and with the capital so arranged he may and wealth generation. enter into contracts of supply of Entrepreneurship is creative also in the equipment, materials, utilities (such as sense that it involves innovation- water and electricity) and technology. introduction of new products, What lies at the core of organisation of discovery of new markets and sources production is the knowledge about of supply of inputs, technological availability and location of the breakthroughs as well as introduction resources as well as the optimum way of newer organisational forms for doing to combine them. An entrepreneur things better, cheaper, faster and, in the needs negotiation skills to raise these present context, in a manner that in the best interests of the enterprise. causes the least harm to the ecology/ (v) R i s k - t a k i n g : It is generally environment. believed that entrepreneurs take high (iv) Organisation of Production: risks. Yes, individuals opting for a Production, implying creation of form, career in entrepreneurship take a place, time personal utility, requires the bigger risk that involved in a career in combined utilisation of diverse factors employment or practice of a profession of production, land, labour, capital and as there is no "assured" payoff. In technology. Entrepreneur, in response practice, for example, when a person What if, your idea is not just an Idea? What if, your idea sees the light of the day? What if, it is really born? What if, you get someone to believe in it and nurture it? What, if you set a path to travel on it? What if, it grows and blooms? What if, the world embraces your idea? What if, your idea develops to make the world safer, happier and prosperous for the future generations? Adapted from www.startupindia.gov.in 2019-20 SMALL BUSINESS AND ENTREPRENEURSHIP 223 quits a job to start on his own, he tries entrepreneurship, especially to calculate whether he or she would among the youth, be able to earn the same level of income (iii) encourage more dynamic or not. To an observer, the risk of startups by motivating educated quitting a well-entrenched and youth, scientists and promising career seems a "high" risk, technologists to consider but what the person has taken is a entrepreneurship as a lucrative, calculated risk. They are so sure of their preferred and viable career, and capabilities that they convert 50% (iv) support the early phase of chances into 100% success. They entrepreneurship development, avoid situations with higher risks as including the pre-startup, they hate failure as anyone would do; nascent, as well as, early post they dislike lower risk situations as startup phase and growth business ceases to be a game/fun! Risk enterprises. as such more than a financial stake, (v) Broad base the entrepreneurial becomes a matter of personal stake, supply by meeting specific needs where less than expected performance of under represented target causes displeasure and distress. groups, like women, socially and economically backward 9.8 STARTUP INDIA SCHEME communities, scheduled castes The Startup India Scheme is a flagship and scheduled tribes; under initiative of the Government of India represented regions to achieve with an objective to carve a strong inclusiveness and sustainable ecosystem for nurturing innovation and development to address the needs startups in the country. This drive will of the population at the bottom of lead towards sustainable economic the pyramid. growth and generate large-scale As per the notification dated employment opportunities. The February 17, 2017, issued by the Government of India aims to empower Ministry of Commerce and Industry, a startups to grow through innovation startup means: and design. The scheme specifically (i) An entity incorporated or aims to: registered in India. (i) trigger an entrepreneurial culture (ii) Not older than five years. and inculcate entrepreneurial (iii) Annual turnover does not exceed values in the society at large and ` 25 crore in any preceding year. influence the mindset of people (iv) Working towards innovation, towards entrepreneurship, development or commercialisation (ii) create awareness about the of products/service/ processes charms of being an entrepreneur driven by technology or IPRs and and the process of patent. 2019-20 224 BUSINESS STUDIES 9.8.1 Startup India Initiative: 9.8.2 Ways to fund startup Action Points In addition to the government plans (i) S i m p l i f i c a t i o n a n d h a n d - that offer startup capital and bank holding: In order to make compliance loans, the funding for startups can also for startups, friendly and flexible, be availed in the following ways: simplifications are announced. (i) B o o t s t r a p p i n g : Commonly (ii) Startup India Hub: The objective known as self financing, it is considered as the first funding option because by is to create a single point of contact for stretching out your personal savings the entire startup ecosystem and enable and resources, you are tied to your knowledge exchange and access to business. Also, at a later stage, investors funding. consider it as your merit. However, it is (iii) Legal support and fasttracking a good option of funding only if the Patent Examination: The scheme for initial requirement is small and handy. Startups Intellectual Property (ii) Crowdfunding: It is the pooling of Protections (SIPP) is envisaged to resources by a group of people for a facilitate protection of patents, common goal. Crowdfunding is not trademarks and designs of innovative new to India. There are many instances and interested startups. of organisations reaching out to (iv) Easy exit: In the event of a common people for funding. However, business failure and wind up of the emergence of platforms that operations, procedures are being promote crowdfunding is fairly recent adopted to reallocate capital and to India. These platforms help startups resources towards more productive or small businesses to meet their avenues. This will promote funding requirements. experimentation with new and (iii) Angel investment: Angel investors are individuals with surplus innovative ideas, without fearing cash who have keen interest to invest complex and long drawn exit process. in upcoming startups. They also offer (v) Harnessing private sector for mentoring or advice alongside capital. i n c u b a t o r s e t u p : To ensure (iv) Venture capital: There are professional management of professionally managed funds which government sponsored/funded are invested in companies that have incubators, the government envisages huge potential. Venture capitalists setting up of incubators across the provide expertise, mentorship and act country in PPP mode. as a litmus test of where a business (vi) Tax exemption: The profits of organisation is going, evaluating startup initiatives are exempted for business from sustainability and income tax for a period of three years. scalability point of view. 2019-20 SMALL BUSINESS AND ENTREPRENEURSHIP 225 (v) B u s i n e s s i n c u b a t o r s a n d designs used in business, etc. All accelerators: Early stage business inventions of creations begin with an can consider incubator and accelerator 'idea'. Once the idea becomes an actual programmes as a funding option. These product, i.e., Intellectual Property, one programmes assist hundreds of can apply to the authority concerned startup businesses every year. These under the Government of India for two are generally used protection. Legal rights conferred on interchangeably. However, incubator is such products are called 'Intellectual like a parent who nurtures the Property Rights' (IPR). Hence business (child), whereas, accelerator Intellectual property (IP) refers to helps to run or take a giant leap in products of human mind, hence, business. Incubators and accelerators just like other types of property, the ably connect the startups with owners of IP can rent, give or sell it to mentors, investors and fellow startups other people. using this platform. Specifically, Intellectual property (vi) Microfinance and NFBCs: Micro (IP) refers to the creations of the human finance is basically access to financial mind, like inventions, literary and services to those who either do not have artistic works, symbols, names, images access to conventional banking services and designs used in business. or have not qualified for a bank loan. Similarly, NBFCs (Non Banking In history, you must have come Financial Corporation) provides across the historic 'Battle of banking services without meeting legal Haldighati', which took place requirement/definition of a bank. between the then Rajput ruler, Rana Pratap Singh of Mewar, Rajasthan 9.9 INTELLECTUAL PROPERTY RIGHTS and the Mughal emperor Akbar in (IPR) 1567 A.D. A similar Battle of Haldi- Over the past two decades, intellectual ghati was hotly contested in the year property rights have grown to a stature 1997. The issue was the patent from where it plays a major role in the granted by the US Patent Office on development of global economy. turmeric (haldi) to University of Intellectual property is everywhere, i.e., Mississippi medical centre in 1995 the music you listen to, the technology for its wound healing properties; that makes your phone work, the implying that this was a new design of your favourite car, the logo invention, when we have been using on your sneakers, etc. It exists in all haldi since times immemorial for the things you can see—all are the healing injuries. The Government of products of human creativity and skill, India vehemently opposed this such as inventions, books, paintings, patent, and ultimately, India won songs, symbols, names, images, or this battle—the patent was cancelled! 2019-20 226 BUSINESS STUDIES Intellectual property is divided into two examples of Indian traditional broad categories: industrial property, medicinal systems are Ayurveda, which includes inventions (patents), Unani, Siddha and Yoga. Traditional trademarks, industrial designs and Knowledge (TK) means the knowledge, geographical indications, while the systems, innovations and practices of other is copyrights, which includes local communities across the globe. literary and artistic works, such as Such wisdom has been developed and novels, poems, plays, films, musical accumulated over the years and has works, artistic works, such as been used and passed down through drawings, paintings, photographs and several generations. A Traditional sculptures and architectural designs. Knowledge Digital Library (TKDL) has The most noticeable difference been developed by Government of between intellectual property and other India, which is essentially a digital forms of property is that intellectual knowledge repository of Traditional property is intangible i.e., it cannot be Knowledge that has existed in our defined or indentified by its own ancient civilization, especially about physical parameters. The scope and medicinal plants and formulations definition of intellectual property is used in Indian systems of medicine. constantly evolving with the inclusion This rich body of knowledge helps of newer forms. In recent times, prevents wrongful patenting of our geographical integrated circuits and traditional knowledge. undisclosed indications, protection of Another type of IP is Trade Secrets. plant varieties, information have been You must have heard about the popular brought under the protection of semi- beverage, Coca Cola. But do you know conductors and umbrella of intellectual that the recipe of this beverage is only property. The following types of known to three people in the whole Intellectual Property Rights are world? This secret information is recognized in India: Copyright, termed as a 'Trade Secret'. A trade Trademark, Geographical Indication, secret is basically any confidential Patent, Design, Plant Variety, information which provides a Semiconductor Integrated Circuit competitive edge. Trade secrets in India Layout Design. In addition to this, are protected under the Indian Contract traditional knowledge also fall under Act, 1872. IP. You must have often taken homely remedies passed on from your 9.9.1 Why Is IPR Important for grandparents and great-grandparents Entrepreneurs? as cure for an ailment. These homely It encourages creation of new, path- remedies are traditional medicines that breaking inventions, such as cancer have been practiced in India for past cure medicines. It incentivises several centuries. They are also known inventors, authors, creators, etc., for as 'T raditional Knowledge'. Some their work. It allows the work created 2019-20 SMALL BUSINESS AND ENTREPRENEURSHIP 227 by a person to be distributed and unprecedented challenges and communicated to the public only with opportunities for continued progress in his/her permission. Therefore, it helps human development. There are in the prevention of loss of income. It business opportunities to market or helps authors, creators, developers and sell IP worldwide. Geographical borders owners to get recognition for their present no impediments—consumers works. enjoy near immediate access to almost With the establishment of the World everything. At such exciting times, it is T rade Organisation (WTO), the critical that we are aware about the importance and role of intellectual importance of IPRs and how it affects property protection has been daily life.Under the umbrella of crystallised in the Trade-Related intellectual property, three different Intellectual Property Systems (TRIPS) facets come into play, which are: Agreement. With the establishment of (i) Law : Intellectual Property Rights WTO, and India being a signatory to are legal rights conferred upon the the agreement on TRIPS, several creator/IP owner to prevent others legislations were passed for the from using the protected subject protection of intellectual property matter. It is a legal watch guard of rights to meet the international knowledge. obligations. These included Trade (ii) Technology:The pre-requisite of Mark Act 1999, the Geographical intellectual property is that, the Indications of Goods (Registration and creation has to be original. The Protection) Act 1999, Designs Act 2000 creator has to bring something and Protection of Plant Varieties and novel into existence. IPR with Farmers' Rights Act 2001, the Patents respect to technology covers Act 2005 and the Copyright various aspects of information (Amendment) Act 2012. technology, automobiles, pharmaceuticals, biotechnology 9.9.2 Types of IPs etc. (iii) Business and Economics: The IPRs are extremely essential for basics of IPRs help in the fostering creativity and contribute development of the industry and towards the economic growth of a in the success of businesses. IPRs nation. Such rights allow creators and provide rights to the proprietors of inventors to have control over their the businesses. creations and inventions. These rights Let's understand each IP now. create incentives for artists, entrepreneurs and inventors to further Copyright commit the necessary resources to research, develop, and market new Copyright is the right to "not copy". It technology and creative works. The is offered when an original idea is changing global economy is creating expressed by the creator or author. It 2019-20 228 BUSINESS STUDIES What is protected under Copyright? Literary work Pamphlets, Brochures, Novels, Books, Poems, Song L yrics, Computer Programme Artistic work Drawings, Paintings, Sculpture, Architectural Drawings, Technical Drawings, Maps, Logos Dramatic work Including Dance or Mime, Screenplay, Musical Work, Sound Recording, Cinetographic films is a right conferred upon the creators the same, or similar trademark to sell of literary, artistic, musical, sound their product in the market as the same recording and cinematographic film. fall under the concept of deceptive The copyright is an exclusive right of similarity which may be defined as the creator to prohibit the unauthorized phonetic, structural or visual. use of the content which includes similarity. T rademark may be reproducing and distributing copies of categorized as Conventional and Non- the subject matter. The unique feature Conventional trademark - of copyright is that, the protection of (i) Conventional Trademark: Words, work arises automatically as soon as colour combination, label, logo, the work comes into existence. The packaging, shape of goods, etc. registration of the content is not (ii) Non-Conventional Trademark: mandatory but is essential to exercise Under this category those marks exclusive rights in case of an are considered which were not infringement. considered distinctive previously but started getting recognition Trademark with the passage of time i.e. sound mark, dynamic mark, etc. A trademark is any word, name, or Besides these, smell and taste are symbol (or their combination) that lets also considered for protection as us identify the goods made by an trademarks, in some parts of the world, individual, company, organization, etc. but they are not recognized as Trademarks also let us differentiate the trademarks in India. The registration goods of one company from another. of trademark is not mandatory under In a single brand or logo, trademarks the T rademark Act 1999, but can let you know many things about a registration of trademark helps company's reputation, goodwill, establish exclusive rights over the products and services. A trademark mark. To register the mark you can visit helps in distinguishing similar http://www.ipindia.nic.in which is the products in the market from its website of the Indian Trademark competitors. A competitor cannot use Registry. 2019-20 SMALL BUSINESS AND ENTREPRENEURSHIP 229 Geographical Indication Patent A Geographical Indication (GI) is A patent is a type of IPR which protects primarily an indication which identifies the scientific inventions (products and agricultural, natural or manufactured or process) which shows technical products (handicrafts, industrial goods advancement over the already known and food stuffs) originating from a products. A 'patent' is an exclusive right definite geographical territory, where a granted by the Government which given quality, reputation or other provides the exclusive 'right to exclude' characteristic are essentially all others and prevent them from attributable to its geographical origin. making, using, offering for sale, selling GIs are part of our collective and or importing the invention. intellectual heritage that need to be For an invention to be patentable, protected and promoted. Goods it must be new, non-obvious to any protected and registered as GI are person who is skilled in the relevant categorized into agricultural products, field of technology and must be capable natural, handicrafts, manufactured of industrial application. goods and food stuffs. Naga Mircha, (i) It must be new, i.e. it should not Mizo Chilli, Shaphee Lanphee, Moirang already exist in the current pheeand Chakhesang Shawl, Bastar knowledge anywhere in the world, Dhokra, Warli Paintings, Darjeeling i.e. not in public domain in any Tea, Kangra Painting, Nagpur Orange, form, before the filing of patent Banaras Brocades and Sarees, and application (Novelty). Kashmir Pashmina are some of the (ii) It must be non-obvious to any examples of GIs. The importance of GIs person who is skilled in the has increasingly grown over the past relevant field of technology. That few decades. GI represents collective is, the standard is a person goodwill of a geographical region, which reasonably skilled in such field of has built itself over centuries. Today, study (Inventive Step). consumers are paying more and more (iii) Finally, it must be capable of attention to the geographical origin of industrial application, i.e. capable products and accord much care to the of being used or manufactured in specific characteristics present in the the industry. products that they purchase. In some Patent can only be filed to get rights cases, there is a difference between over an invention and not discovery. "place of origin" and "geographical Newton saw the apple fall and indications" which suggests to discovered gravity which is considered consumers, that the product will have to be a discovery. On the other hand, a particular quality or characteristic, the father of telephone Alexander that they may value. Graham Bell invented telephone. 2019-20 230 BUSINESS STUDIES Thus when we use our ability to create Design something novel, or something unique A 'design' includes shape, pattern, and into existence, it is called an invention, arrangement of lines or colour whereas the process of highlighting the combination that is applied to any existence of an already existing thing article. It is a protection given to is called discovery. aesthetic appearance or eye-catching features. The term of protection of a What cannot be patented? design is valid for 10 years, which can Scientific principles, contrary to well be renewed for further 5 years after established natural laws, formulation expiration of this term, during which a of abstract theory, frivolous registered design can only be used after inventions, prejudicial to morality or getting a license from its owner and injurious to public health, method of once the validity period is over, the agriculture or horticulture, method of treatment, admixtures, traditional design is in public domain. knowledge, incremental inventions Plant Variety without increase in efficacy and inventions related to atomic energy Plant Variety is essentially grouping are some of the inventions not plants into categories based on their patentable under Sections 3 & 4 of botanical characteristics. It is a type of the Patents Act, 1970. variety which is bred and developed by farmers. This helps in conserving, The purpose of patent is to improving and making available plant encourage innovation in the scientific genetic resources. For example, hybrid field. A patent grants exclusive rights versions of potatoes. Such protection to the inventor for a period of 20 years, promotes investment in R&D, during which anybody else who wishes recognizes Indian farmers as to use the patented subject-matter cultivators, conservers and breeders as needs to seek permission from the well as facilitates high quality seeds and planting material. This leads to the patentee, by paying certain costs for growth of the seed industry. the commercial use of such an invention. This process of seeking Semiconductor Integrated exclusive rights of the patentee for a fee Circuits Layout Design is called Licensing. Have you ever seen a computer chip? Patent creates a temporary Are you aware of integrated circuits monopoly. Once the term of a patent also known as 'ICs'? A semiconductor expires, the invention is in public is an integral part of every computer domain which means it is free for use chip. Any product that contains by people. This prevents the patentee transistors and other circuitry elements from involving in anti-competitive used and formed on a semiconductor practices like creating monopoly etc. material, as an insulating material, or 2019-20 SMALL BUSINESS AND ENTREPRENEURSHIP 231 inside the semiconductor material. Its innovate and think ahead, otherwise it design is to perform an electronic will simply stagnate and wither away. circuitry function. It is equally essential to respect others' IP, not only on ethical grounds, but IP and Business also legal. After all, respect for others' We have already discussed the IP begets respect for one's IP. Start-up importance of intellectual property and is an entrepreneurial venture that the ways to protect it as intellectual capitalizes on developing, improving property rights. Let us now see how this and innovating new products, helps a business. Recall the old proverb processes and services for the target 'necessity is the mother of all audience. Start-ups today are inventions'? If we were to trace the responsible for several disruptive development of a wheel from the Stone technologies that have changed the Ages, the round wheel was invented as very way we think and live. With there was felt a need to increase the 20,000+ start-ups, India is said to have efficiency of work. This wheel the third largest start-up ecosystem in underwent various technological the world. The Start-up India initiative advancements, and today, we know seeks to capture the entrepreneurial successful business tyre giants like streak in Indians, and create a nation CEAT, JK Tyres, Bridgestone, etc. of job-creators, not job-seekers. Whether a business is establishing Intellectual property rights can be its presence in the marketplace or is critical in aiding new ventures monetise already well-entrenched, protecting their ideas and establish and managing its intellectual property competitiveness in the market by is critical in taking the business ahead. extending the protective umbrella Any business has to continuously offered by IPRs. Key Terms Small scale industries Cottage industries Tiny industries Micro business industries Khadi industries Entrepreneurship SUMMARY Role of small business in India: Small Scale Industries play a very important role in the socio-economic development of the country. These industries account for 95 per cent of industrial units, contributing up to 40 per cent of the gross industrial value added and 45 per cent of the total exports. SSIs are the second largest employers of human resources, after agriculture and produce a variety of products for the economy. These units contribute to the balanced regional development of the country by using locally available material and indigenous technology. These provide ample 2019-20 232 BUSINESS STUDIES scope for entrepreneurship; enjoy the advantage of low cost of production; quick decision making, and have quick adaptability and are best suited to customised production. Role of small business in rural India: Small business units provide multiple source of income, in wide range of non-agricultural activities and provide employment opportunities in rural areas, especially for the traditional artisan and weaker sections of the society. Governmental assistance to small industries: Some of the major institutions providing support include National Bank for Agriculture and Rural Development, Rural Small Business Development Centre, National Small Industries Corporation, Small Industries Development Bank of India (SIDBI), the National Commission for Enterprises in Unorganised Sector (NCEUS), Rural and Women Entrepreneurship Development (RWE), World Association for Small and Medium Enterprises (WASME), Scheme of Fund for Regeneration of Traditional Industries (SFURM) and the District Industries centre (DIC). E n t r e p r e n e u r : The ter ms ‘entrepr eneur,’ ‘entr epr eneurship’ and ‘enterprises’ can be understood by drawing an analogy with the structure of a sentence in English language. Entrepreneur is the person (the subject), entrepreneurship is the process (the verb) and enterprise is the creation of the person and the output of the process (the object). EXERCISES Short Answer Questions 1. What are the different parameters used to measure the size of business? 2. What is the definition used by Government of India for Small Scale Industries? 3. How would you differentiate between an ancillary unit and a tiny unit? 4. State the features of cottage industries. Long Answer Questions 1. How do small scale industries contribute to the socio-economic development of india? 2. Describe the role of small business in rural India. 3. Discuss the problems faced by small scale industries. 4. What measures has the government taken to solve the problem of finance and marketing in the small scale sector? 5. What are the incentives provided by the Government for industries in backward and hilly areas? Projects/Assignments 1. Prepare a questionnaire to find out the actual problems faced by an owner of a small scale unit. Prepare a project report on it. 2. Survey about five small scale units in your vicinity and find out if they have received any assistance by the institutions setup by the Government. 2019-20