What is MSME? Definition, Classification & Government Schemes
Small business is a core concept in Class 11 Business Studies, crucial for understanding India’s economic foundation and the role of Micro, Small, and Medium Enterprises (MSMEs). Mastering this topic helps in school and competitive exams and builds a practical grasp of entrepreneurship, government schemes, and business challenges encountered every day.
| MSME Category | Investment Limit (Plant & Machinery/Equipment) | Turnover Limit |
|---|---|---|
| Micro Enterprise | Up to ₹1 crore | Up to ₹5 crore |
| Small Enterprise | Up to ₹10 crore | Up to ₹50 crore |
| Medium Enterprise | Up to ₹50 crore | Up to ₹250 crore |
Important Questions for Class 11 Business Studies Chapter 9 – Small Business
This chapter covers important questions about small business, such as MSME definitions, investment limits, cottage industries, and the role of government schemes. These questions sharpen exam skills and help students apply concepts in case studies and real-world business situations.
- Which industry uses local and family labour?
Answer: Cottage industry. - What is the maximum investment for a micro enterprise as per MSMED Act, 2006?
Answer: ₹1 crore in plant and machinery/equipment and turnover up to ₹5 crore. - List two key problems faced by small scale industries in India.
Answer: Limited access to finance and irregular supply or high cost of raw materials. - State two features of cottage industries.
Answer: Use of family and local labour, employment of simple tools and indigenous techniques. - What are the aims of the National Small Industries Corporation (NSIC)?
Answer: To supply indigenous/imported machines, distribute raw materials, and facilitate exports for small businesses. - Explain one objective of NABARD.
Answer: Promotes rural business enterprises by offering finance, training, and advisory services. - How do small businesses contribute to India’s exports?
Answer: Small businesses account for over 40% of industrial value-added and about 45% of total exports.
Classification and Features of Small Business and MSME
Small businesses are classified by their investment in plant, machinery, or equipment, and annual turnover. The main types are micro, small, and medium enterprises, as per MSMED Act, 2006. These businesses are known for their flexibility, personalization, and strong role in local employment generation.
Key Features of Cottage Industries
- Run by individuals or families using local resources
- Simple manual tools and indigenous technology
- Low capital and small-scale operations
- Manufacturing takes place at home or small workshops
- Focus on artisan or homemade products like handlooms, handicrafts, and toys
Problems of Small Business in India
Small business units face unique challenges in India. Limited access to credit, obsolete technology, dependency on middlemen, and poor management skills make operations difficult. Recognizing these challenges helps students understand government policies and suggest solutions in exam scenarios.
| Problem | Example/Impact |
|---|---|
| Lack of Finance | Dependence on moneylenders; high interest; low creditworthiness |
| Raw Material Issues | High cost, low quality, or irregular supply affects production |
| Poor Management Skills | Often run by individuals with little formal training |
| Outdated Technology | Low productivity and inconsistent quality |
| Labor Problems | Low wages and high employee turnover |
| Marketing Restrictions | Reliance on middlemen leads to low profit and payment delays |
| Competition from Large Industries | Small businesses cannot always meet quality or price standards set by multinationals |
Government Support and Schemes for MSME/SSI
To address these difficulties, various government institutions like NABARD, NSIC, and SIDBI offer support through credit, training, equipment supply, exports, and policy incentives. Schemes such as Marketing Assistance and cluster development targets skill gaps and increases the competitiveness of small businesses.
Examples of Government Schemes
- Government Assistance to Small Industries and Small Business Units
- Marketing Assistance Scheme – for training and improving sales skills
- NABARD – credit and consulting for rural and agricultural entrepreneurs
- NSIC – equipment/mechanization support on easy terms
Case Studies and Application Questions
Exams test application skills using real-life cases. For example, classifying an enterprise based on investment, explaining the impact of location, or describing values shown in business operations. Practicing such questions prepares you for higher-order thinking and board patterns.
Sample Case Scenario
- A manufacturing unit with ₹9 lakh investment is a micro enterprise.
- A unit investing ₹7.5 crore (plant and machinery) falls under small enterprise.
- Setting up industries in rural/hilly regions attracts incentives like tax holidays, concessional power/water, and cheaper land.
Related Internal Links for Class 11 Business Studies
- Small Business and Entrepreneurship Class 11 Important Questions
- Features of Company
- Government Assistance to Small Industries and Small Business Units
- Entrepreneurship Development Process
- DK Goel Solutions Class 11 Accountancy Chapter 27
- Types of Errors
- Sources of Business Finance
- Business Environment
- Challenges to Entrepreneurs
- Marketing Process
- Merits and Demerits of Accounting
In summary, Class 11 Business Studies Chapter 9 – Small Business equips students with crucial understanding of MSME definitions, features, and the practicalities of running and supporting small businesses in India. Reviewing these questions and concepts on Vedantu will help you excel in exams and understand business fundamentals for daily and competitive challenges.
FAQs on Class 11 Business Studies Chapter 9: Important Questions and Answers
1. What are the key points of Chapter 9 in Business Studies class 11?
Chapter 9 of Class 11 Business Studies focuses on small businesses and MSMEs (Micro, Small, and Medium Enterprises). Key points include defining small businesses, understanding the MSMED Act 2006's classification based on investment and turnover, exploring the challenges faced by small businesses in India, and examining government support schemes like those offered by NABARD, NSIC, and SIDBI. The chapter also highlights the role of small businesses in the Indian economy and their contribution to GDP and exports.
2. What is MSME according to the MSMED Act 2006?
MSME stands for Micro, Small, and Medium Enterprises. The MSMED Act 2006 classifies them based on investment in plant & machinery and annual turnover. Micro enterprises have lower investment and turnover limits than small enterprises, which in turn have lower limits than medium enterprises. These limits are periodically revised by the Indian government.
3. What are the problems faced by small businesses in India?
Small businesses in India face numerous challenges. These include limited access to finance, difficulties in procuring raw materials, inadequate marketing skills, intense competition, and lack of technology and infrastructure. Furthermore, navigating legal compliance and accessing government support schemes can also be difficult for many.
4. How do government schemes support small-scale industries?
The Indian government offers various schemes to support small-scale industries (SSIs) and MSMEs. These include financial assistance through institutions like NABARD (National Bank for Agriculture and Rural Development), SIDBI (Small Industries Development Bank of India), and NSIC (National Small Industries Corporation). They also provide marketing assistance, technology upgrades, and skill development programs to boost competitiveness and growth.
5. Which law regulates Micro, Small & Medium Enterprises in India?
The Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) is the primary law that governs and regulates MSMEs in India. This act defines MSMEs based on investment and turnover, and it also outlines government support and regulations for these enterprises.
6. What is the definition of small business?
A small business is typically defined by its size, in terms of investment, turnover, and number of employees. The specific criteria vary depending on the country and governing legislation (like the MSMED Act 2006 in India). Key characteristics include independent ownership, limited number of employees, and focused on a specific niche or market.
7. What are the investment limits for MSMEs in India?
The investment limits for MSMEs in India are periodically revised. Consult the latest guidelines from the Ministry of Micro, Small & Medium Enterprises for the most up-to-date information on investment thresholds for micro, small, and medium enterprises. These limits are key to understanding the classification of businesses under the MSMED Act 2006.
8. What are three key problems faced by small businesses in India?
Three major problems faced by small businesses in India are: 1. Limited access to capital: Securing loans and funding can be challenging. 2. Intense competition: They often face pressure from larger, established businesses. 3. Lack of marketing skills: Effective marketing and reaching wider customer bases are often difficult for smaller enterprises. Addressing these issues is crucial for small business success.
9. Give two examples of cottage industries and their key features.
Examples of cottage industries include handloom weaving and pottery. Key features typically include small-scale operations, home-based production, use of simple tools and techniques, and often family-based workforce. These industries are significant in terms of employment and preserving traditional skills but often face challenges in terms of scalability and market access.
10. How do changes in the MSME classification affect business financing opportunities?
Changes in MSME classification directly impact access to finance. Revised investment and turnover limits determine eligibility for various government schemes and bank loans specifically designed for MSMEs. Reclassification can lead to changes in the availability of credit, subsidies, and other financial support, significantly impacting a business's growth potential.
