small business and entrepreneurship

CHAPTER 9

SMALL 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.

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212 BUSINESS STUDIES

9.1 INTRODUCTION

Small scale industries contributesignificantly to the developmentprocess and acts as a vital link in theindustrialisation in terms ofproduction, employment and exportsfor economic prosperity by wideningentrepreneurial base and use of localraw materials and indigenous skills.

Small scale industries dominate theindustrial scenario in the country withsizeable proportion of labour force andtremendous export potential.

In India, the 'village and smallindustries sector' consists of both'traditional' and 'modern' smallindustries. This sector has eightsubgroups. They are handlooms,handicrafts, coir, sericulture, khadi

Romi Bags of ManipurKhumbongmayum Dhanachandra Singh didn't have much in life. The son of apoor tailor, he wasn't brought up with many privileges. He saw his father workingday and night to earn a meager income. He saw the rich getting richer and thepoor remaining poor. The boy wanted to do something more in life. He couldn'timagine a life of stitching clothes relentlessly and earn just enough to survive.Imphal is a small city. Hardworking men and women send their children awayto bigger cities so they can have opportunities to progress. Khumbongmayum'sfather couldn't afford to send him or even educate him. He just taught him whathe knew- tailoring. Fabrics, stitching and clothing styles was what the boy grewup with. There was only one sewing machine and the boy used it when hisfather wasn't using it. He learnt it silently because he knew it was what hisfather wanted but his heart wasn't in it.

Sometimes an incisdenr can change your life. This happened toKhumbongmayum when he stitched a purse made out of leftover fabrics fromhis father's scraps. Khumbongmayum offered the purse to his friend whomarveled at the unique design. The friend in turn showed the interesting purseto his other friends. They asked Khumbongmayum if he could make such pursesfor them. It led him to wonder if there was a market for his designs. And heknew he had stumbled on to his business venture. He made a business planand launched a purse making company 'Romi Bags' in 1996. Khumbongmayumwas not one to do anything on a whim. He noticed the demands of his productand he calculated his costs, expenses and expected income. He ignored thedetractors and critics. As a first time entrepreneur, he believed in whateverquality of materials he was getting. This was his biggest mistake. The cheapquality of materials for shoes led to them being rejected by the consumers.Stock was returning and remaining unsold in the factory. Khumbongmayumlearnt his first lesson. In 2007, he received the National Award for in Bag Makingfor 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 movingforward. You can't become successful or reach the top in a day. ew if you listenand hear effectively.

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213SMALL BUSINESS AND ENTREPRENEURSHIP

and village industries, small scaleindustries and powerlooms. The lasttwo come under the modern smallindustries, while the others come undertraditional industries. Village and smallindustries together provide the largestemployment opportunities in India.

9.2 TYPES OF SMALL BUSINESS

It is important to know how size isdefined in our country, with referenceto small industries and small businessestablishments. Several parameters canbe used to measure the size of businessunits. These include the number ofpersons employed in business, capitalinvested in business, volume of outputor value of output of business andpower consumed for businessactivities. However, there is noparameter which is without limitations.Depending on the need, the measurescan vary.

The definition used by theGovernment of India to describe smallindustries is based on the investmentin plant and machinery. This measureseeks to keep in view the socio-economic environment in India wherecapital is scarce and labour is abundant.

The emergence of a large servicessector has necessitated the governmentto include other enterprises coveringboth Small Scale Industries (SSI) sectorand related service entities under thesame umbrella. Expansion of the smallscale enterprises was taking placegrowing into medium scale enterprisesand they were required to adopt higherlevels of technologies in order to remain

competitive in a fast globalizing world.

Thus, it was necessary to address the

concerns of such enterprises micro,

small and medium and provide them

with a single legal framework. The

Micro, Small and Medium Enterprises

Development (MSMED) Act, 2006

addresses these issues relating to

definition, credit, marketing and

technology up gradation. Medium scale

enterprises and service related

enterprises also come under the

purview of this Act. The MSMED Act,

2006 came into force w.e.f., October,

2006.

Accordingly, enterprises are

classified into two major categories viz.,

manufacturing and services.

9.2.1 Manufacturing

In the case of enterprises engaged in

the manufacture or production of

goods pertaining to any industries

specified in the first schedule to the

Industries (Development and

Regulation) Act, 1951, there are three

types of enterprises:

(i) Micro enterprise: where theinvestment in plant and machinery does

not exceed twenty-five lakh rupees.

(ii) Small enterprise: where the

investment in plant and machinery ismore than twenty five lakh rupees butdoes not exceed five crore rupees.

(iii) Medium enterprise: where the

investment in plant and machinery ismore then five crore rupees but doesnot exceed ten crores rupees.

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9.2.2 Services

In the case of enterprises engaged in

providing or rendering of services thereare three types of enterprises:

(i) Micro enterprise: where the

investment in equipment does notexceed ten lakh rupees.

(ii) Small enterprise: where theinvestment in equipment is more than

ten lakh rupees but does not exceedtwo crore rupees.

(iii) Medium enterprise: where the

investment in equipment is more thantwo crore rupees but does not exceedfive crore rupees.

9.2.3 Village Industries

Village industry has been defined asany industry located in a rural area

which produces any goods, renders anyservice with or without the use of powerand in which the fixed capital

investment per head or artisan orworker is specified by the centralgovernment, from time to time.

9.2.4 Cottage Industries

Cottage industries are also known asRural Industries or Traditional

Industries. They are not defined bycapital investment criteria as in the caseof other small scale industries.

However, cottage industries arecharacterized by certain features likethe following:• these are organised by individuals,

with private resources;

• normally use family labour andlocally available talent;

• the equipment used is simple;• capital investment is small;• produce simple products, normally

in their own premises;• production of goods using

indigenous technology.

9.3 ROLE OF SMALL BUSINESS IN INDIA

Small Scale Industries in India enjoy adistinct position in view of theircontribution to the socio-economicdevelopment of the country. Thefollowing points highlight theircontribution.

(i) The contribution of smallindustries to the balanced regionaldevelopment of our country isnoteworthy. Small industries in Indiaaccount for 95 per cent of the industrialunits in the country.

(ii) Small industries are the secondlargest employers of human resources,after agriculture. They generate morenumber of employment opportunitiesper unit of capital invested comparedto large industries. They are, therefore,considered to be more labour intensiveand less capital intensive. This is aboon for a labour surplus country likeIndia.

(iii) Small industries in our countrysupply an enormous variety ofproducts which include massconsumption goods, readymadegarments, hosiery goods, stationeryitems, soaps and detergents, domesticutensils, leather, plastic and rubbergoods, processed foods and vegetables,

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wood and steel furniture, paints,varnishes, safety matches, etc. Amongthe sophisticated items manufacturedare electric and electronic goods liketelevisions, calculators, electro-medicalequipment, electronic teaching aids likeoverhead projectors, air conditioningequipment, drugs andpharmaceuticals, agricultural toolsand equipment and several otherengineering products. A specialmention should be made ofhandlooms, handicrafts and otherproducts from traditional villageindustries in view of their export value.(see Box A which highlights the majorindustry groups that come under thepurview of small industries as per theclassification laid down by thegovernment.)

(iv) Small industries which producesimple products using simpletechnologies and depend on locallyavailable resources both material andlabour can be set up anywhere in thecountry. Since they can be widelyspread without any locationalconstraints, the benefits ofindustrialisation can be reaped byevery region. They, thus, contributesignificantly to the balanceddevelopment of the country.

(v) Small industries provide ampleopportunity for entrepreneurship. Thelatent skills and talents of people canbe channeled into business ideaswhich can be converted into realitywith little capital investment and almostnil formalities to start a small business.

(vi) Small industries also enjoy theadvantage of low cost of production.

Locally available resources are lessexpensive. Establishment and runningcosts of small industries are on thelower side because of low overheadexpenses. Infact, the low cost ofproduction which small industriesenjoy is their competitive strength.

(vii) Due to the small size of theorganisations, quick and timelydecisions can be taken withoutconsulting many people as it happensin large sized organisations. Newbusiness opportunities can becaptured at the right time.

9.4 ROLE OF SMALL BUSINESS IN

RURAL INDIA

Traditionally, rural households indeveloping countries have been viewedas exclusively engaged in agriculture.There is an increasing evidence thatrural households can have highlyvaried and multiple sources of incomeand that, rural households can and doparticipate in a wide range of non-agricultural activities such as wageemployment and self-employment incommerce, manufacturing and

services, along with the traditional rural

activities of farming and agricultural

labour. This can be largely attributed

to the policy initiatives taken by the

Government of India, to encourage and

promote the setting up of agro-based

rural industries.

The emphasis on village and small

scale industries has always been an

integral part of India's industrial

strategy, more so, after the second Five

Year Plan. Cottage and rural industries

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play an important role in providing

employment opportunities in the ruralareas, especially for the traditional

artisans and the weaker sections ofsociety. Development of rural andvillage industries can also prevent

migration of rural population to urbanareas in search of employment.

Village and small industries are

significant as producers of consumergoods and absorbers of surplus labour,thereby addressing the problems of

poverty and unemployment. Theseindustries contribute amply to othersocio-economic aspects, such as

reduction in income inequalities,dispersed development of industriesand linkage with other sectors of the

economy.In fact promotion of small scale

industries and rural industrialisationhas been considered by theGovernment of India as a powerfulinstrument for realising the twinobjectives of 'accelerated industrialgrowth and creating additionalproductive employment potential inrural and backward areas.'

However, the potential of smallindustries is often not realised fully,because of several problems related tosize. We shall now examine some of themajor problems that small businesseswhether in urban or in rural areas areencountering in their day-to-dayfunctioning.

9.5 PROBLEMS OF SMALL BUSINESS

Small scale industries are at a distinctdisadvantage as compared to large

scale industries. The scale ofoperations, availability of finance,ability to use modern technology,procurement of raw materials are someof these areas. This gives rise to severalproblems.

Most of these problems can beattributed to the small size of theirbusiness, which prevents them fromtaking advantages, which accrue tolarge business organisations. However,the problems faced are not similar toall the categories of small businesses.For instance, in the case of smallancillary units, the major problemsinclude delayed payments, uncertaintyof getting orders from the parent unitsand frequent changes in productionprocesses. The problems of traditionalsmall scale units include remotelocation with less developedinfrastructural facilities, lack ofmanagerial talent, poor quality,traditional technology and inadequateavailability of finance.

The problems of exporting smallscale units include lack of adequatedata on foreign markets, lack of marketintelligence, exchange ratefluctuations, quality standards, andpre-shipment finance. In general thesmall businesses are faced with thefollowing problems:( i ) Finance: One of the severeproblems faced by SSIs is that of non-availability of adequate finance to carryout its operations.

Generally a small business beginswith a small capital base. Many of theunits in the small sector lack the creditworthiness required to raise as capital

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from the capital markets. As a result,they heavily depend on local financialresources and are frequently thevictims of exploitation by the moneylenders. These units frequently sufferfrom lack of adequate working capital,either due to delayed payment of duesto them or locking up of their capital inunsold stocks. Banks also do not lendmoney without adequate collateralsecurity or guarantees and marginmoney, which many of them are not ina position to provide.(ii) Raw materials: Another majorproblem of small business is theprocurement of raw materials. If therequired materials are not available,they have to compromise on the qualityor have to pay a high price to get goodquality materials. Their bargainingpower is relatively low due to the smallquantity of purchases made by them.Also, they cannot afford to take the riskof buying in bulk as they have nofacilities to store the materials. Becauseof general scarcity of metals, chemicalsand extractive raw materials in theeconomy, the small scale sector suffersthe most. This also means a waste ofproduction capacity for the economyand loss of further units.(iii) Managerial skills: Smallbusiness is generally promoted andoperated by a single person, who maynot possess all the managerial skillsrequired to run the business. Many ofthe small business entrepreneurspossess sound technical knowledgebut are less successful in marketingthe output.

Moreover, they may not findenough time to take care of allfunctional activities. At the same timethey are not in a position to affordprofessional managers.(iv) Labour: Small business firmscannot afford to pay higher salaries tothe employees, which affects employeewillingness to work hard and producemore. Thus, productivity per employeeis relatively low and employee turn overis generally high. Because of lowerremuneration offered, attractingtalented people is a major problem insmall business organisations.Unskilled workers join for lowremuneration but training them is atime consuming process. Also, unlikelarge organisations, division of labourcannot be practised, which results inlack of specialisation and concentration.(v) Marketing: Marketing is one of themost important activities as it generatesrevenue. Effective marketing of goodsrequires a thorough understanding ofthe customer's needs andrequirements. In most cases, marketingis a weaker area of small organisations.These organisations have, therefore, todepend excessively on middlemen, whoat times exploit them by paying lowprice and delayed payments. Further,direct marketing may not be feasiblefor small business firms as they lackthe necessary infrastructure.(vi) Quality: Many small businessorganisations do not adhere to desiredstandards of quality. Instead theyconcentrate on cutting the cost andkeeping the prices low. They do not

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have adequate resources to invest inquality research and maintain thestandards of the industry, nor do theyhave the expertise to upgradetechnology. In fact maintaining qualityis their weakest point, when competingin global markets.(vii) Capacity utilisation: Due to lackof marketing skills or lack of demand,many small business firms have tooperate below full capacity due towhich their operating costs tend toincrease. Gradually this leads tosickness and closure of the business.(viii) Technology: Use of outdatedtechnology is often stated as seriouslacunae in the case of small industries,resulting in low productivity anduneconomical production.(ix) Sickness: Prevalence of sicknessin small industries has become a pointof worry to both the policy makers andthe entrepreneurs. The causes ofsickness are both internal and external.Internal problems include lack ofskilled and trained labour andmanagerial and marketing skills. Someof the external problems includedelayed payment, shortage of workingcapital, inadequate loans and lack ofdemand for their products.(x) Global competition: Apart fromthe problems stated above smallbusinesses are not without fears,especially in the present context ofliberalisation, privatisation andglobalisation (LPG) policies beingfollowed by several countries across theworld. Remember, India too has takenthe LPG path since 1991. Let us lookinto the areas where small businesses

feel threatened with the onslaught ofglobal competition.

(a) Competition is not only frommedium and large industries, but alsofrom multinational companies whichare giants in terms of their size andbusiness volumes. Opening up of traderesults in cut throat competition forsmall scale units.

(b) It is difficult to withstand thequality standards, technological skills,financial creditworthiness, managerialand marketing capabilities of the largeindustries and multinationals.

(c) There is limited access tomarkets of developed countries due tothe stringent requirements of qualitycertification like ISO 9000.

9.6 GOVERNMENT ASSISTANCE TO

SMALL BUSINESS UNITS

Keeping in view the contribution ofsmall business to employmentgeneration, balanced regionaldevelopment of the country, andpromotion of exports, the Governmentof India's policy thrust has been onestablishing, promoting anddeveloping the small business sector,particularly the rural industries andthe cottage and village industries inbackward areas. Governments both atthe central and state level have beenactively participating in promotingself-employment opportunities inrural areas by providing assistance inrespect of infrastructure, finance,technology, training, raw materials,and marketing. The various policiesand schemes of Government assistance

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for the development of rural industriesinsist on the utilisation of localresources and raw materials andlocally available manpower. These aretranslated into action through variousagencies, departments, corporations,etc., all coming under the purview ofthe industries department. All theseare primarily concerned with thepromotion of small and ruralindustries.

Some of the support measures andprogrammes meant for the promotionof small and rural industries are :

1. National Bank for Agricultureand Rural Development(NABARD):

National Bank for Agriculture andRural Development was setup in 1982to promote integrated ruraldevelopment. Apart from agriculture,it supports small industries, cottageand village industries, and ruralartisans using credit and non-creditapproaches. It offers counselling andconsultancy services and organisestraining and development programmesfor rural entrepreneurs.

2. The Rural Small BusinessDevelopment Centre (RSBDC)

The Rural Small Business Development

Centre is sponsored by NABARD. It

works for the benefit of socially and

economically disadvantaged

individuals and groups. Through its

programmes it covers a large number

of rural unemployed youth and women

in several trades, which includes food

processing, soft toys making, ready-

made garments, candle making,

incense stick making, two-wheeler

repairing and servicing,

vermicomposting, and non

conventional building materials.

3. National Small IndustriesCorporation (NSIC)

National Small Industries Corporationwasset up in 1955 with a view topromote, aid and foster the growth ofsmall business units in the country.This focuses on the commercial aspectsof these functions.

(i) Supply indigenous and importedmachines on easy hire-purchaseterms.

(ii) Procure, supply and distributeindigenous and imported rawmaterials.

(iii) Export the products of smallbusiness units and developexport-worthiness.

(iv) Mentoring and advisory services.(a) Serve as technology business

Incubators.(b) Creating awareness on

technological upgradation.(c) Developing software

technology parks and technology transfer centres.

4. Rural and WomenEntrepreneurshipDevelopment (RWED)

The Rural and WomenEntrepreneurship Developmentprogramme aims at promoting aconducive business environment and

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at building institutional and human

capacities that will encourage and

support the entrepreneurial initiativesof rural people and women. RWE

provides the following services:

(i) Creating a business environment

that encourages initiatives of ruraland women entrepreneurs.

(ii) Enhancing the human and

institutional capacities required to

foster entrepreneurial dynamismand enhance productivity.

(iii) Providing training manuals for

women entrepreneurs and

training them.(iv) Rendering any other advisory

services.

5. Scheme of Fund forRegeneration of TraditionalIndustries (SFURTI)

To make the traditional industries

more productive and competitive and

to facilitate their sustainable

development, the Central Governmentset up in the year 2005. The main

objectives of the scheme are as follows:

(i) To develop clusters of traditional

industries in various parts of thecountry;

(ii) To build innovative and traditional

skills, improve technologies and

encourage public-privatepartnerships, develop market

intelligence etc., to make them

competitive, profitable and

sustainable; and(iii) To create sustained employment

opportunities in traditional

industries.

6. The District Industries Centers(DICs)

The District Industries Center waslaunched on 1 May 1978, with a viewto providing an integratedadministrative framework at the districtlevel, which would look at the problemsof industrialisation in the district, in acomposite manner. Identification ofsuitable schemes, preparation offeasibility reports, arranging for credit,machinery and equipment, provision ofraw materials and other extensionservices are the main activitiesundertaken by these centers.

9.7 ENTREPRENEURSHIP

DEVELOPMENT

Entrepreneurship is the process ofsetting up one's own business asdistinct from pursuing any othereconomic activity, be it employment orpractising some profession. The personwho set-up his business is called anentrepreneur. The output of theprocess, that is, the business unit iscalled an enterprise. It is interesting tonote that entrepreneurship besidesproviding self-employment to theentrepreneur is responsible to a greatextent for creation and expansion ofopportunities for the other twoeconomic activities, that is, employmentand profession. And, in the process,entrepreneurship becomes crucial foroverall economic development of anation.When you make this choice, youbecome a job-provider rather than ajob-seeker, besides enjoying a host ofother financial and psychological

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rewards. Taking to entrepreneurship issurely more a matter of aspiring tobecome an entrepreneur rather asbeing born as one. We would like todefine entrepreneurship as asystematic, purposeful and creativeactivity of identifying a need, mobilisingresources and organising productionwith a view to delivering value to thecustomers, returns for the investorsand profits for the self in accordancewith the risks and uncertaintiesassociated with business. Thisdefinition points to certaincharacteristics of entrepreneurship thatwe turn our attention to.

Entrepreneurship does not emergespontaneously. Rather, it is theoutcome of a dynamic process ofinteraction between a person and his/her environment. Ultimately, the choiceof entrepreneurship as a career lieswith an individual, yet he/she must seeit as a desirable, as well as, a feasibleoption. In this regard, it becomesimperative to look at both-factors in theenvironment, as well as, factors in theindividual's perception of desirabilityand feasibility.

9.7.1 Characteristics ofEntrepreneurship

Every country, whether developed ordeveloping, needs entrepreneurs.Whereas, a developing country needsentrepreneurs to initiate the process ofdevelopment, the developed one needsentrepreneurship to sustain it. In thepresent Indian context, where on theone hand, employment opportunitiesin public sector and large-scale sector

are shrinking, and on the other, vastopportunities arising from globalisationare waiting to be exploited;entrepreneurship can really take Indiato the heights of becoming a supereconomic power. Thus, the need forentrepreneurship arises from thefunctions the entrepreneurs perform inrelation to the process of economicdevelopment and in relation to thebusiness enterprise.

The following are the characteristicsof entrepreneurship:(i) Systematic Activity:Entrepreneurship is not a mysteriousgift or charm and something thathappens by chance! It is a systematic,step-by-step and purposeful activity.It has certain temperamental, skill andother knowledge and competencyrequirements that can be acquired,learnt and developed, both by formaleducational and vocational training aswell as by observation and workexperience. Such an understanding ofthe process of entrepreneurship iscrucial for dispelling the myth thatentrepreneurs are born rather thanmade.(ii) Lawful and Purposeful Activity:The object of entrepreneurship is lawfulbusiness. It is important to take noteof this as one may try to legitimiseunlawful actions as entrepreneurshipon the grounds that just asentrepreneurship entails risk, so doesillicit businesses. Purpose ofentrepreneurship is creation of valuefor personal profit and social gain.(iii) Innovation: From the point of viewof the firm, innovation may be cost

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saving or revenue-enhancing. If it doesboth it is more than welcome. Even if itdoes none, it is still welcome asinnovation must become a habit!

Entrepreneurship is creative in thesense that it involves creation of value.By combining the various factors ofproduction, entrepreneurs producegoods and services that meet the needsand wants of the society. Everyentrepreneurial act results in incomeand wealth generation.Entrepreneurship is creative also in thesense that it involves innovation-introduction of new products,discovery of new markets and sourcesof supply of inputs, technologicalbreakthroughs as well as introductionof newer organisational forms for doingthings better, cheaper, faster and, in thepresent context, in a manner thatcauses the least harm to the ecology/environment.(iv) Organisation of Production:Production, implying creation of form,place, time personal utility, requires thecombined utilisation of diverse factorsof production, land, labour, capital andtechnology. Entrepreneur, in response

to a perceived business opportunitymobilises these resources into aproductive enterprise or firm. It may bepointed out that the entrepreneur maynot be possessing any of theseresources; he may just have the 'idea'that he promotes among the resourceproviders. In an economy with a well-developed financial system, he has toconvince just the funding institutionsand with the capital so arranged he mayenter into contracts of supply ofequipment, materials, utilities (such aswater and electricity) and technology.What lies at the core of organisation ofproduction is the knowledge aboutavailability and location of theresources as well as the optimum wayto combine them. An entrepreneurneeds negotiation skills to raise thesein the best interests of the enterprise.(v) Risk-taking: It is generallybelieved that entrepreneurs take highrisks. Yes, individuals opting for acareer in entrepreneurship take abigger risk that involved in a career inemployment or practice of a professionas there is no "assured" payoff. Inpractice, 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 andprosperous for the future generations?Adapted from www.startupindia.gov.in

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quits a job to start on his own, he triesto calculate whether he or she wouldbe able to earn the same level of incomeor not. To an observer, the risk ofquitting a well-entrenched andpromising career seems a "high" risk,but what the person has taken is acalculated risk. They are so sure of theircapabilities that they convert 50%chances into 100% success. Theyavoid situations with higher risks asthey hate failure as anyone would do;they dislike lower risk situations asbusiness ceases to be a game/fun! Riskas such more than a financial stake,becomes a matter of personal stake,where less than expected performancecauses displeasure and distress.

9.8 STARTUP INDIA SCHEME

The Startup India Scheme is a flagshipinitiative of the Government of Indiawith an objective to carve a strongecosystem for nurturing innovation andstartups in the country. This drive willlead towards sustainable economicgrowth and generate large-scaleemployment opportunities. TheGovernment of India aims to empowerstartups to grow through innovationand design. The scheme specificallyaims to:

(i) trigger an entrepreneurial cultureand inculcate entrepreneurialvalues in the society at large andinfluence the mindset of peopletowards entrepreneurship,

(ii) create awareness about thecharms of being an entrepreneurand the process of

entrepreneurship, especiallyamong the youth,

(iii) encourage more dynamicstartups by motivating educatedyouth, scientists and

technologists to considerentrepreneurship as a lucrative,preferred and viable career, and

(iv) support the early phase ofentrepreneurship development,including the pre-startup,

nascent, as well as, early poststartup phase and growthenterprises.

(v) Broad base the entrepreneurialsupply by meeting specific needsof under represented target

groups, like women, socially andeconomically backwardcommunities, scheduled castesand scheduled tribes; under

represented regions to achieveinclusiveness and sustainabledevelopment to address the needs

of the population at the bottom ofthe pyramid.

As per the notification datedFebruary 17, 2017, issued by theMinistry of Commerce and Industry, astartup means:

(i) An entity incorporated orregistered in India.

(ii) Not older than five years.(iii) Annual turnover does not exceed

` 25 crore in any preceding year.(iv) Working towards innovation,

development or commercialisationof products/service/ processesdriven by technology or IPRs andpatent.

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9.8.1 Startup India Initiative:

Action Points

(i) Simplification and hand-

holding: In order to make compliance

for startups, friendly and flexible,

simplifications are announced.

(ii) Startup India Hub: The objective

is to create a single point of contact for

the entire startup ecosystem and enable

knowledge exchange and access to

funding.

(iii) Legal support and fasttracking

Patent Examination: The scheme for

Startups Intellectual Property

Protections (SIPP) is envisaged to

facilitate protection of patents,

trademarks and designs of innovative

and interested startups.

(iv) Easy exit: In the event of a

business failure and wind up of

operations, procedures are being

adopted to reallocate capital and

resources towards more productive

avenues. This will promote

experimentation with new and

innovative ideas, without fearing

complex and long drawn exit process.

(v) Harnessing private sector for

incubator setup: To ensure

professional management of

government sponsored/funded

incubators, the government envisages

setting up of incubators across the

country in PPP mode.

(vi) Tax exemption: The profits of

startup initiatives are exempted for

income tax for a period of three years.

9.8.2 Ways to fund startup

In addition to the government plansthat offer startup capital and bankloans, the funding for startups can alsobe availed in the following ways:(i) Boot strapping: Commonlyknown as self financing, it is consideredas the first funding option because bystretching out your personal savingsand resources, you are tied to yourbusiness. Also, at a later stage, investorsconsider it as your merit. However, it isa good option of funding only if theinitial requirement is small and handy.(ii) Crowdfunding: It is the pooling ofresources by a group of people for acommon goal. Crowdfunding is notnew to India. There are many instancesof organisations reaching out tocommon people for funding. However,the emergence of platforms thatpromote crowdfunding is fairly recentto India. These platforms help startupsor small businesses to meet theirfunding requirements.(iii) Angel investment: Angelinvestors are individuals with surpluscash who have keen interest to investin upcoming startups. They also offermentoring or advice alongside capital.(iv) Venture capital: There areprofessionally managed funds whichare invested in companies that havehuge potential. Venture capitalistsprovide expertise, mentorship and actas a litmus test of where a businessorganisation is going, evaluatingbusiness from sustainability andscalability point of view.

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(v) Business incubators andaccelerators: Early stage businesscan consider incubator and acceleratorprogrammes as a funding option. Theseprogrammes assist hundreds ofstartup businesses every year. Thesetwo are generally usedinterchangeably. However, incubator islike a parent who nurtures thebusiness (child), whereas, acceleratorhelps to run or take a giant leap inbusiness. Incubators and acceleratorsably connect the startups withmentors, investors and fellow startupsusing this platform.(vi) Microfinance and NFBCs: Microfinance is basically access to financialservices to those who either do not haveaccess to conventional banking servicesor have not qualified for a bank loan.Similarly, NBFCs (Non BankingFinancial Corporation) providesbanking services without meeting legalrequirement/definition of a bank.

9.9 INTELLECTUAL PROPERTY RIGHTS

(IPR)

Over the past two decades, intellectualproperty rights have grown to a staturefrom where it plays a major role in thedevelopment of global economy.Intellectual property is everywhere, i.e.,the music you listen to, the technologythat makes your phone work, thedesign of your favourite car, the logoon your sneakers, etc. It exists in allthe things you can see—all are theproducts of human creativity and skill,such as inventions, books, paintings,songs, symbols, names, images, or

designs used in business, etc. Allinventions of creations begin with an'idea'. Once the idea becomes an actualproduct, i.e., Intellectual Property, onecan apply to the authority concernedunder the Government of India forprotection. Legal rights conferred onsuch products are called 'IntellectualProperty Rights' (IPR). HenceIntellectual property (IP) refers toproducts of human mind, hence,just like other types of property, theowners of IP can rent, give or sell it toother people.

Specifically, Intellectual property(IP) refers to the creations of the humanmind, like inventions, literary andartistic works, symbols, names, imagesand designs used in business.

In history, you must have comeacross the historic 'Battle ofHaldighati', which took placebetween the then Rajput ruler, RanaPratap Singh of Mewar, Rajasthanand the Mughal emperor Akbar in1567 A.D. A similar Battle of Haldi-ghati was hotly contested in the year1997. The issue was the patentgranted by the US Patent Office onturmeric (haldi) to University ofMississippi medical centre in 1995for its wound healing properties;implying that this was a newinvention, when we have been usinghaldi since times immemorial forhealing injuries. The Government ofIndia vehemently opposed thispatent, and ultimately, India wonthis battle—the patent was cancelled!

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Intellectual property is divided into twobroad categories: industrial property,which includes inventions (patents),trademarks, industrial designs andgeographical indications, while theother is copyrights, which includesliterary and artistic works, such asnovels, poems, plays, films, musicalworks, artistic works, such asdrawings, paintings, photographs andsculptures and architectural designs.

The most noticeable differencebetween intellectual property and otherforms of property is that intellectualproperty is intangible i.e., it cannot bedefined or indentified by its ownphysical parameters. The scope anddefinition of intellectual property isconstantly evolving with the inclusionof newer forms. In recent times,geographical integrated circuits andundisclosed indications, protection ofplant varieties, information have beenbrought under the protection of semi-conductors and umbrella of intellectualproperty. The following types ofIntellectual Property Rights arerecognized in India: Copyright,Trademark, Geographical Indication,Patent, Design, Plant Variety,Semiconductor Integrated CircuitLayout Design. In addition to this,traditional knowledge also fall underIP. You must have often taken homelyremedies passed on from yourgrandparents and great-grandparentsas cure for an ailment. These homelyremedies are traditional medicines thathave been practiced in India for pastseveral centuries. They are also knownas 'Traditional Knowledge'. Some

examples of Indian traditionalmedicinal systems are Ayurveda,Unani, Siddha and Yoga. TraditionalKnowledge (TK) means the knowledge,systems, innovations and practices oflocal communities across the globe.Such wisdom has been developed andaccumulated over the years and hasbeen used and passed down throughseveral generations. A TraditionalKnowledge Digital Library (TKDL) hasbeen developed by Government ofIndia, which is essentially a digitalknowledge repository of TraditionalKnowledge that has existed in ourancient civilization, especially aboutmedicinal plants and formulationsused in Indian systems of medicine.This rich body of knowledge helpsprevents wrongful patenting of ourtraditional knowledge.

Another type of IP is Trade Secrets.You must have heard about the popularbeverage, Coca Cola. But do you knowthat the recipe of this beverage is onlyknown to three people in the wholeworld? This secret information istermed as a 'Trade Secret'. A tradesecret is basically any confidentialinformation which provides acompetitive edge. Trade secrets in Indiaare protected under the Indian ContractAct, 1872.

9.9.1 Why Is IPR Important forEntrepreneurs?

It encourages creation of new, path-breaking inventions, such as cancercure medicines. It incentivisesinventors, authors, creators, etc., fortheir work. It allows the work created

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by a person to be distributed andcommunicated to the public only withhis/her permission. Therefore, it helpsin the prevention of loss of income. Ithelps authors, creators, developers andowners to get recognition for theirworks.

With the establishment of the WorldTrade Organisation (WTO), theimportance and role of intellectualproperty protection has beencrystallised in the Trade-RelatedIntellectual Property Systems (TRIPS)Agreement. With the establishment ofWTO, and India being a signatory tothe agreement on TRIPS, severallegislations were passed for theprotection of intellectual propertyrights to meet the internationalobligations. These included TradeMark Act 1999, the GeographicalIndications of Goods (Registration andProtection) Act 1999, Designs Act 2000and Protection of Plant Varieties andFarmers' Rights Act 2001, the PatentsAct 2005 and the Copyright(Amendment) Act 2012.

9.9.2 Types of IPs

IPRs are extremely essential forfostering creativity and contributetowards the economic growth of anation. Such rights allow creators andinventors to have control over theircreations and inventions. These rightscreate incentives for artists,entrepreneurs and inventors to furthercommit the necessary resources toresearch, develop, and market newtechnology and creative works. Thechanging global economy is creating

unprecedented challenges andopportunities for continued progress inhuman development. There arebusiness opportunities to market orsell IP worldwide. Geographical borderspresent no impediments—consumersenjoy near immediate access to almosteverything. At such exciting times, it iscritical that we are aware about theimportance of IPRs and how it affectsdaily life.Under the umbrella ofintellectual property, three differentfacets come into play, which are:(i) Law : Intellectual Property Rights

are legal rights conferred upon thecreator/IP owner to prevent othersfrom using the protected subjectmatter. It is a legal watch guard ofknowledge.

(ii) Technology:The pre-requisite ofintellectual property is that, thecreation has to be original. Thecreator has to bring somethingnovel into existence. IPR withrespect to technology coversvarious aspects of informationtechnology, automobiles,pharmaceuticals, biotechnologyetc.

(iii) Business and Economics: Thebasics of IPRs help in thedevelopment of the industry andin the success of businesses. IPRsprovide rights to the proprietors ofthe businesses.

Let's understand each IP now.

Copyright

Copyright is the right to "not copy". Itis offered when an original idea isexpressed by the creator or author. It

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is a right conferred upon the creatorsof literary, artistic, musical, soundrecording and cinematographic film.The copyright is an exclusive right ofthe creator to prohibit the unauthorizeduse of the content which includesreproducing and distributing copies ofthe subject matter. The unique featureof copyright is that, the protection ofwork arises automatically as soon asthe work comes into existence. Theregistration of the content is notmandatory but is essential to exerciseexclusive rights in case of aninfringement.

Trademark

A trademark is any word, name, orsymbol (or their combination) that letsus identify the goods made by anindividual, company, organization, etc.Trademarks also let us differentiate thegoods of one company from another.In a single brand or logo, trademarkscan let you know many things about acompany's reputation, goodwill,products and services. A trademarkhelps in distinguishing similarproducts in the market from itscompetitors. A competitor cannot use

the same, or similar trademark to selltheir product in the market as the samefall under the concept of deceptivesimilarity which may be defined asphonetic, structural or visual.similarity. Trademark may becategorized as Conventional and Non-Conventional trademark -

(i) Conventional Trademark: Words,colour combination, label, logo,packaging, shape of goods, etc.

(ii) Non-Conventional Trademark:Under this category those marksare considered which were notconsidered distinctive previouslybut started getting recognitionwith the passage of time i.e. soundmark, dynamic mark, etc.

Besides these, smell and taste arealso considered for protection astrademarks, in some parts of the world,but they are not recognized astrademarks in India. The registrationof trademark is not mandatory underthe Trademark Act 1999, butregistration of trademark helpsestablish exclusive rights over themark. To register the mark you can visithttp://www.ipindia.nic.in which is thewebsite of the Indian TrademarkRegistry.

What is protected under Copyright?

Pamphlets, Brochures, Novels, Books, Poems, SongLyrics, Computer Programme

Drawings, Paintings, Sculpture, Architectural Drawings,Technical Drawings, Maps, Logos

Including Dance or Mime, Screenplay, Musical Work,Sound Recording, Cinetographic films

Literary work

Artistic work

Dramatic work

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Geographical Indication

A Geographical Indication (GI) isprimarily an indication which identifiesagricultural, natural or manufacturedproducts (handicrafts, industrial goodsand food stuffs) originating from adefinite geographical territory, where agiven quality, reputation or othercharacteristic are essentiallyattributable to its geographical origin.GIs are part of our collective andintellectual heritage that need to beprotected and promoted. Goodsprotected and registered as GI arecategorized into agricultural products,natural, handicrafts, manufacturedgoods and food stuffs. Naga Mircha,Mizo Chilli, Shaphee Lanphee, Moirangpheeand Chakhesang Shawl, BastarDhokra, Warli Paintings, DarjeelingTea, Kangra Painting, Nagpur Orange,Banaras Brocades and Sarees, andKashmir Pashmina are some of theexamples of GIs. The importance of GIshas increasingly grown over the pastfew decades. GI represents collectivegoodwill of a geographical region, whichhas built itself over centuries. Today,consumers are paying more and moreattention to the geographical origin ofproducts and accord much care to thespecific characteristics present in theproducts that they purchase. In somecases, there is a difference between"place of origin" and "geographicalindications" which suggests toconsumers, that the product will havea particular quality or characteristic,that they may value.

Patent

A patent is a type of IPR which protectsthe scientific inventions (products andor process) which shows technicaladvancement over the already knownproducts. A 'patent' is an exclusive rightgranted by the Government whichprovides the exclusive 'right to exclude'all others and prevent them frommaking, using, offering for sale, sellingor importing the invention.

For an invention to be patentable,it must be new, non-obvious to anyperson who is skilled in the relevantfield of technology and must be capableof industrial application.

(i) It must be new, i.e. it should notalready exist in the currentknowledge anywhere in the world,i.e. not in public domain in anyform, before the filing of patentapplication (Novelty).

(ii) It must be non-obvious to anyperson who is skilled in therelevant field of technology. Thatis, the standard is a personreasonably skilled in such field ofstudy (Inventive Step).

(iii) Finally, it must be capable ofindustrial application, i.e. capableof being used or manufactured inthe industry.

Patent can only be filed to get rightsover an invention and not discovery.Newton saw the apple fall anddiscovered gravity which is consideredto be a discovery. On the other hand,the father of telephone AlexanderGraham Bell invented telephone.

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Thus when we use our ability to createsomething novel, or something uniqueinto existence, it is called an invention,

whereas the process of highlighting the

existence of an already existing thing

is called discovery.

Design

A 'design' includes shape, pattern, andarrangement of lines or colourcombination that is applied to anyarticle. It is a protection given toaesthetic appearance or eye-catchingfeatures. The term of protection of adesign is valid for 10 years, which canbe renewed for further 5 years afterexpiration of this term, during which aregistered design can only be used aftergetting a license from its owner andonce the validity period is over, the

design is in public domain.

Plant Variety

Plant Variety is essentially groupingplants into categories based on theirbotanical characteristics. It is a type ofvariety which is bred and developed byfarmers. This helps in conserving,improving and making available plantgenetic resources. For example, hybridversions of potatoes. Such protectionpromotes investment in R&D,recognizes Indian farmers ascultivators, conservers and breeders aswell as facilitates high quality seedsand planting material. This leads to thegrowth of the seed industry.

Semiconductor IntegratedCircuits Layout Design

Have you ever seen a computer chip?Are you aware of integrated circuitsalso known as 'ICs'? A semiconductoris an integral part of every computerchip. Any product that containstransistors and other circuitry elementsused and formed on a semiconductormaterial, as an insulating material, or

What cannot be patented?

Scientific principles, contrary to wellestablished natural laws, formulationof abstract theory, frivolousinventions, prejudicial to morality orinjurious to public health, method ofagriculture or horticulture, method oftreatment, admixtures, traditionalknowledge, incremental inventionswithout increase in efficacy andinventions related to atomic energyare some of the inventions notpatentable under Sections 3 & 4 ofthe Patents Act, 1970.

The purpose of patent is to

encourage innovation in the scientific

field. A patent grants exclusive rights

to the inventor for a period of 20 years,

during which anybody else who wishes

to use the patented subject-matter

needs to seek permission from the

patentee, by paying certain costs for

the commercial use of such an

invention. This process of seeking

exclusive rights of the patentee for a fee

is called Licensing.

Patent creates a temporary

monopoly. Once the term of a patent

expires, the invention is in public

domain which means it is free for use

by people. This prevents the patentee

from involving in anti-competitive

practices like creating monopoly etc.

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inside the semiconductor material. Itsdesign is to perform an electroniccircuitry function.

IP and Business

We have already discussed theimportance of intellectual property andthe ways to protect it as intellectualproperty rights. Let us now see how thishelps a business. Recall the old proverb'necessity is the mother of allinventions'? If we were to trace thedevelopment of a wheel from the StoneAges, the round wheel was invented asthere was felt a need to increase theefficiency of work. This wheelunderwent various technologicaladvancements, and today, we knowsuccessful business tyre giants likeCEAT, JK Tyres, Bridgestone, etc.

Whether a business is establishingits presence in the marketplace or isalready well-entrenched, protectingand managing its intellectual property

is critical in taking the business ahead.

Any business has to continuously

innovate and think ahead, otherwise itwill simply stagnate and wither away.It is equally essential to respect others'IP, not only on ethical grounds, butalso legal. After all, respect for others'IP begets respect for one's IP. Start-upis an entrepreneurial venture thatcapitalizes on developing, improvingand innovating new products,processes and services for the targetaudience. Start-ups today areresponsible for several disruptivetechnologies that have changed thevery way we think and live. With20,000+ start-ups, India is said to havethe third largest start-up ecosystem inthe world. The Start-up India initiativeseeks to capture the entrepreneurialstreak in Indians, and create a nationof job-creators, not job-seekers.Intellectual property rights can becritical in aiding new ventures monetisetheir ideas and establishcompetitiveness in the market byextending the protective umbrella

offered by IPRs.

SUMMARY

Role of small business in India: Small Scale Industries play a veryimportant role in the socio-economic development of the country. Theseindustries account for 95 per cent of industrial units, contributing up to 40per cent of the gross industrial value added and 45 per cent of the totalexports. SSIs are the second largest employers of human resources, afteragriculture and produce a variety of products for the economy. These unitscontribute to the balanced regional development of the country by usinglocally available material and indigenous technology. These provide ample

Key Terms

Small scale industries Cottage industries Tiny industries

Micro business industries Khadi industries Entrepreneurship

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scope for entrepreneurship; enjoy the advantage of low cost of production;quick decision making, and have quick adaptability and are best suited tocustomised production.Role of small business in rural India: Small business units provide multiplesource of income, in wide range of non-agricultural activities and provideemployment opportunities in rural areas, especially for the traditionalartisan and weaker sections of the society.Governmental assistance to small industries: Some of the majorinstitutions providing support include National Bank for Agriculture andRural Development, Rural Small Business Development Centre, NationalSmall Industries Corporation, Small Industries Development Bank of India(SIDBI), the National Commission for Enterprises in Unorganised Sector(NCEUS), Rural and Women Entrepreneurship Development (RWE), WorldAssociation for Small and Medium Enterprises (WASME), Scheme of Fundfor Regeneration of Traditional Industries (SFURM) and the DistrictIndustries centre (DIC).Entrepreneur: The terms ‘entrepreneur,’ ‘entrepreneurship’ and‘enterprises’ can be understood by drawing an analogy with the structureof a sentence in English language. Entrepreneur is the person (the subject),entrepreneurship is the process (the verb) and enterprise is the creation ofthe 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 SmallScale 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-economicdevelopment 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 offinance and marketing in the small scale sector?

5. What are the incentives provided by the Government for industries inbackward and hilly areas?

Projects/Assignments

1. Prepare a questionnaire to find out the actual problems faced by anowner 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 theyhave received any assistance by the institutions setup bythe Government.

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small business and entrepreneurship

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