Class 11 NCERT Solutions: Chapter 9 MSME and Business Entrepreneurship Exercise 9.1 (Business Studies)

Very Short Answer Questions

Question 1: Which year was the MSMED Act passed?

Answer: The MSMED Act was passed in the year 2006.

The Micro, Small and Medium Enterprises Development (MSMED) Act of 2006 was formed to facilitate promotion and development and enhance the competitiveness of micro, small, and medium enterprises and for matters connected therewith or incidental thereto.

Question 2:  What is the micro-enterprise?

Answer: According to the Micro, Small and Medium Enterprises Development (MSMED) Act of 2006, a micro-enterprise is one with a capital expenditure in plant and machinery of less than ₹1 crore and an annual turnover of less than ₹5 crores.

Question 3: What is a cottage industry?

Answer: A cottage industry is a small-scale enterprise which is mostly run by family members, and the profits generated from the business is majorly used to meet the household’s daily requirements. One of the common and major examples of the cottage industry is handicrafts and textiles produced locally.

Question 4: What is meant by Village and Khadi Industry?

Answer: According to the regulations of the central government, Village Industries are those situated in rural areas that invest in fixed assets. Whereas, Khadi Industries are those that weave handlooms from materials such as cotton, wool, silk yarn, and so on or that weave handloom from a combination of two or all of these yarns.

As a result, Khadi and Village Industries are those that are located in rural areas and have a fixed capital investment per artisan (weaver) of less than a hundred thousand rupees. The Government of India has the authority to alter the Fixed Capital Investment at any moment.

Question 5: Give any two characteristics of entrepreneurship development.

Answer: Entrepreneurship can be defined as a process of setting up a new business or profession, bearing most of the risk, and enjoying most of the rewards. Two characteristics of entrepreneurship development are: 

1. Systematic Activity: Entrepreneurship is a step-by-step process. Entrepreneurs should have some skill, temperament, knowledge, and most importantly a purpose to get into entrepreneurship. It is not something that can happen by chance.

2. Lawful and Purposeful Activity: Entrepreneurship business should not be carried forward with some illegal practices. The business should be lawful and abide by all the Government’s rules & regulations. The objective of entrepreneurship is lawful business. One can not try to legitimize unlawful actions as entrepreneurship on any grounds. 

Short Answer Questions 

Question 1:  What is MSME?

Answer: The size of a business in small industries and business establishments is a major issue. Several parameters can be used to measure the size of business units. These include the number of people employed in a business, capital invested in a business, the volume of output or value of the output of a business, and power consumed for business activities. The definition used by the Government of India to describe MSME is based on investment in plants and machinery.

The Indian government passed the Micro, Small, and Medium Enterprises Development (MSMED) Act in 2006, which describes micro, small, and medium companies as follows:

1. Micro-enterprises have a capital investment of less than ₹1 crore and a turnover that is under ₹5 crore.

2. Small enterprises have a capital investment of less than ₹10 crores and revenue of less than ₹50 crores.

3. Medium-sized enterprises have a capital investment of less than ₹50 crores and revenue of less than ₹250 crores.

Question 2: State the meaning of Entrepreneurship.

Answer: Entrepreneurship is the process of establishing one’s own business as opposed to engaging in any other economic activity, such as employment or practising a profession. An entrepreneur is someone who establishes his own business. The process’s output is the business unit, which is referred to as an Enterprise.

Entrepreneurship is also responsible for the creation and expansion of opportunities for the other two economic activities, that is, Employment and Profession. Every country, whether it’s developed or developing, requires entrepreneurs, whereas a developing country requires entrepreneurs to kickstart the development process, and a developed country requires entrepreneurship to sustain it. In the current Indian context, where employment opportunities in the public and large-scale sectors are shrinking on the one hand and vast opportunities arising from globalisation are waiting to be exploited on the other, Entrepreneurship has the potential to propel India to the heights of becoming a super economic power.

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

Answer: Yes, MSME and Entrepreneurship are connected. The major reasons are as follows:

1. MSMEs offer banks with financing. They promote entrepreneurship and talent development by establishing specialised training institutes. MSMEs are well-known for offering genuine assistance in accessing both domestic and international marketplaces.

2. After agriculture, MSMEs are the second largest human capital employer. As compared to big industries, they create a greater number of job chances per unit of capital invested. As a result, it is an appealing place to begin for most entrepreneurs.

3. People’s skills and abilities can be channelled into business ideas that can be turned into reality with little capital investment and almost no procedures required to start a small business. As a result, for most entrepreneurs, MSME is a good starting point.

Question 4: State the role of MSME in the development of a country.

Answer: MSMEs in India experience a distinct status due to their contribution to the country’s socioeconomic development. MSME development has always been an important component of India’s industrial plan. MSME development prevents rural population migration to urban areas in search of employment and contributes to other socioeconomic aspects such as income inequality decline, dispersed industrial development, and connection with other sectors of the economy.

Role of Micro, Small, and Medium Enterprises:

1. Provide Employment: Being labour-intensive, MSMEs provide additional employment to men and women. After agriculture, MSMEs constitute the most employed people in India. The agriculturists who remain unemployed or idle during a part of the year have also been provided with employment in any micro, small, or medium business around them.

2. Variety of Products: MSMEs offer a variety of products to the consumers, such as mass consumption goods, stationary, readymade garments, plastic and rubber goods, soaps and detergents, etc. 

3. Improves Economic Condition: MSMEs are established mainly in rural and semi-urban areas which generally belong to the economically poor section of society. The establishment of industries around these sections leads to improvement in employment which helps in improving the overall economic condition.

4. Low Cost of Production: Generally, MSMEs produce simple products with the use of simple technology and take local resources both labour and material into consideration, which helps to maintain a low cost of production.

5. Promotion of Artistic and Creative Sense: Businesses set up in rural area promotes the artistic and creative sense of rural people, which has been suppressed for all these years. The use of natural products and the rural sense of using those products are promoted by MSMEs.

6. Rural Development: By the establishment of industries around economically weaker sections leads to improvement in infrastructure, health facilities, safe drinking water, etc. It also results in sustained growth and regional disparity.

7. Mobilisation of Local Resources: Local resources can remain unutilized if the number of industries and businesses around them is low. MSMEs help in the mobilization of local resources like entrepreneurship skills or small savings or even some natural resources around rural areas.

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

Answer: The size of business units can be measured using a variety of parameters, such as the number of people engaged in business, the capital invested in the business, the volume or worth of business products, and the electricity utilised for business operations. Depending on the need and the benefits or constraints of different metrics, an appropriate parameter may be used. The Government of India defines MSME based on capital investment and revenue. This measure attempts to take into account India’s socioeconomic environment, in which capital is scarce, and labour is abundant.

Question 6: State the meaning of Village and Khadi industries.

Answer: According to the regulations of the central government, Village industries are those situated in rural areas that invest in fixed assets. Khadi Industries are those that weave handlooms from materials such as cotton, wool, silk yarn, and so on, or that weave handloom from a combination of two or all of these yarns. As a result, Khadi and Village Industries are those that are located in rural areas and have a fixed capital investment per artisan (weaver) of less than a hundred thousand rupees. The Government of India has the authority to alter the Fixed Capital Investment at any moment.

The Khadi and Village Industries Commission (KVIC), a non-constitutional body created by the Government of India under the Parliament Act, is the main implementing agency at the national level. KVIC’s objective is to plan, promote, facilitate, organise, and support the growth of Khadi and Village industries in rural areas.

The objectives of KVIC are as follows:

• The main aim of KVIC is to establish a healthy rural community.
• Its societal goal is to provide employment in rural areas.
• The economic aim of KVIC is to produce a marketable product.
• And the main goal is to encourage self-sufficiency in economically underprivileged groups.

Question 7: State any three major problems faced by MSMEs. 

Answer: MSMEs face significant disadvantages when compared to large-scale industries. Some of these areas are the scale of operations, availability of funding, capacity to use modern technology, and the procurement of raw materials. This causes a variety of problems. The primary problems are remote locations with less developed infrastructure, a lack of management talent, bad quality, traditional technology, and insufficient availability of capital.

The major problems faced by Micro, Small, and Medium Enterprises are as follows:

1. Finance: One of the major problems for MSMEs is the arrangement of funds required for the business. They do not have enough creditworthiness for taking funds from the capital market, so they heavily rely on local financial resources that charge them heavy interest.

2. Raw Materials: Being relatively small, MSMEs cannot buy raw materials in bulk, as they do not have their production unit at a big scale, and due to the small quantity of purchase, their bargaining power becomes relatively low. Often, sellers take large orders, and in the situation of scarcity, small business suffers the most as they do not get the raw materials.

3. Marketing: Marketing of the products is the most prominent activity as it holds the responsibility to generate revenue. In most cases, marketing is the weaker area of MSMEs as they lack the amount of money and infrastructure required for marketing.

4. Global Competition: Competitors of MSMEs are not only from the local or national market but also from the global market. It often becomes very difficult for small businesses with outdated technology and a lack of marketing to compete with big giants.