Small Scale Industries Long Answer Type Questions

Question 1.
Explain ownership patterns of small scale enterprises or industries.
Answer:
Ownership patterns of SSE, are represented by the right of an individual or a group of individuals to acquire legal title to assets for the purpose of controlling an industrial operation and enjoying the gains or profits flowing from such activities.

Considering these factors, the form of ownership will be decided for small units. The different forms of ownership are:
1. Sole Trading Concern: Sole proprietorship is a form of business organisation in which an individual invests his own capital, uses his own skill and intelligence in the management of its affairs and is solely responsible for the result of its operation. Important characteristics of a sole trading concern are:

  • Sole Ownership
  • One man control
  • Unlimited risk
  • Undivided risk
  • No separate entity of the firm
  • No Government regulations.

2. Partnership organisation: The Indian Partnership Act defines partnership a “the relation between persons who have agreed to share profits of a business carried on by all or any of them acting for all”. The features of a partnership organisation are:

  • Atleast two persons are required to form a partnership organisation.
  • Partnership is the result of contractual relationship between two or more persons. There must be an agreement between persons who wish to form a partnership.
  • No legal distinction between firm and its partners.
  • Unlimited liability.

3. Co-operative Society: The International Labour Organisation defines a co-operative as “an association of persons, usually of limited means, who voluntarily join together to achieve a common economic end through the formation of a democratically controlled business organisation; making an equitable contribution to the capital required and accepting a fair share of the risks and benefits of the undertaking”

4. Joint Stock company: A joint stock company is a voluntary association of persons who contribute to its capital but their liability remains limited. It carries on business for profit as a legal entity. It possesses the right to own and transfer any property. It can sue and be sued in its own name.

Question 2.
Explain any six merits of partnership.
Answer:
The merits of Partnership:

  • Mobilisation of capital is easier as two or more people contribute capital.
  • Secrecy of business is maintained and formation of partnership is easier.
  • Each and every partners opinions, views are heard by other partners and they are honoured.
  • The risk is reduced as it is shared by two or more persons.
  • When partners come together from diverse fields, they contribute in the form of expert views in decision making.
  • The partnership firm enjoys more stability and continuity of existence compared to the sole proprietorship.
  • Dynamic management can be possible.

Question 3.
Write the steps involved in the formation of small scale industry.
Answer:
Step 1: Product or Service Selection:
This is the most important step in setting up a small scale industries. The main factors to be considered in deciding a suitable project are as follows:

  • Background and experience of entrepreneurs.
  • Availability of the Right Technology & Know
  • Marketability of the product or service.
  • Investment capacity
  • Availability of Plant & Machinery,
  • Availability of Raw Materials.
  • Availability of proper infrastructural facilities such as Land , Electricity, Water, Communication, Transport etc.
  • Availability of Labor like skilled, semi- skilled and unskilled.

Step 2: Location Selection:
After deciding on the project, the next important decision an Entrepreneur has to make is about the Location of the Project. There are some factors to be considered:

  • Nearness to market.
  • Availability of raw materials.
  • Availability of transformation and communication facilities.
  • Availability of Govt incentives and Concessions.
  • Govt Industrial Policy.
  • Availability of suitable Infrastructural facilities.

Step 3: Project Feasibility Study:
The important facts are as follows:

  • Market analysis is carried out to find out the aggregate demand of the proposed product or services.
  • Technical analysis seeks to determine whether the prerequisites.
  • Financial analysis seeks to ascertain whether the proposed project will be financially viable.
  • Economic analysis is concerned judging a project from the larger, social point of view.

Step 4: Preperation a Project Profile:

  • Introduction.
  • Promoter(s) background like education, experience etc.
  • Product(s) or Service(s) description
  • Market and Marketing.
  • Cost of production and profitability.

Step 5: Business Plan Preparation: There are three major alternatives:

  • Proprietary
  • Partnership
  • Company.
  • Specific clearances
  • Land selection
  • Plant & Machinery
  • Infrastructure facilities
  • Project report

Question 4.
What are the stages involved in the preparing promotion plan or action plan?
Answer:
Developing an action plan can help changemakers turn their visions into reality, and increase efficiency and accountability within an organization. An action plan describes the way your organization will meet its objectives through detailed action steps that describe how and when these steps will be taken.

Step 1: Define the Problem(s)
Evaluate the situation. Have all possibilities been considered? In this stage, explore all possibilities, ask all involved or interested individuals for their input into identifying the problem. Is there just one problem or are there more?

Step 2: Collect and Analyze the Data
Now that we have identified the problem, we collect and analyze data to prove or disprove the assumption that our problem is a result of inconsistent ration. We analyze the situations by asking questions.
What ingredient(s) in the computer ration is the likely problem?
What do others (veterinarian, nutritionist, herdsman) see as the reason for the lower bulk tank weights?
What do the feeders see? How much feed is in the alley when new feed is put out?

Step 3: Clarify and Prioritize the Problem(s)
If there is more than one problem, you will need to prioritize the problems so you can focus on the most important problems first. Ask the following questions
to help you sort the problems with the higher priority issues at the top of the list.
Which problem could result in negative consequences in terms of cow or employee health?
Are any of the problems putting the operation in danger of being in noncompliance with regulations?
Which problems have the greatest impact on the long-term economic stability of the operation?
Which problems have short-term impact on the stability of the operation?

Step 4: Write a Goal Statement for Each Solution
The next step in the process is setting S.M.A.R.T. goals, or goals that are:
S – Specific
M – Measurable
A – Achievable
R – Relevant
T – Timely
The team needs to go through the problems that have been identified and evaluate them for each of these items. If all the goals that have been set are S.M.A.R.T. goals, great you are ready to move on to Monitoring Progress. Otherwise, work with the team to make the necessary adjustments to make the goals S.M.A.R.T.

Step 5: Implement Solutions – The Action Plan
Step five is to write an action plan that addresses the problems. An action plan is written so that any employee can do the task successfully alone and is followed much like a recipe. It converts the goal or plan into a people process. It has three essential parts:
Based on the goal the action plans answers five questions – What? When? How? Where? Who?
Lists Resources
Lists Potential Barriers

Step 6: Monitor and Evaluate
The next step in the problem solving process is to design a method for monitoring the outcome. The method we select should assess whether the goal and action plan corrects the problem. In addition, a well-designed monitoring method will help the team to determine when the action plan needs to be improved.

A team of professionals should not spend much time going over numerous data sets. They should have simple spreadsheets or graphs that tell how well the action plan is working and move on to bigger problems.

Step 7: Restart With a New Problem, or Refine the Old Problem The problem solving steps are cyclical. If the first cycle is successful the process starts over with a new problem. If the same problem persists, there must be refinement, so the process starts over with refinement of the original problem as more current data is analyzed.

Question 5.
Explain importance of Cottage Industries.
Answer:
Cottage industries occupy an important place in the economy of India. The importance of cottage industries can be understood as follows:
a. They require less capital. They do not require large premises, huge machines and great investment.

b. They are labour intensive. The greatest advantage of such industries is that even the women and the old in the family can usefully utilise their leisure.

c. They not only increase the income of the family but also reduce unemployment and thus raise the standard of living of the members of the family.

d. Cottage industries can be started in any village or small town. Hence, they help in balanced regional growth.

e. In cottage industries, there is no corruption and no exploitation of the poor by the rich. In cottage Industries there is no fear of a quarrel between the labour and factory owner.

f. Cottage industries provide large scale employment to a huge number of people.

g. Cottage industries also contribute a sizeable amount to the industrial output of the country. Out of the total output of the manufacturing sector, as much as 40% comes from these industries.

h. Many products of the cottage industries like handloom cotton fabrics, silk fabrics, handicrafts, carpets, jewellery, etc. are exported to foreign countries.

i. Cottage industries make use of resources which are available locally which would otherwise have remained unused. These resources are, the hoarded wealth, family-labour, artisan’s skills, native entrepreneurship, etc

j. People of small means can organize these industries. This in turn increases their income-levels and quality of life. As such these industries help in reducing poverty in the country.

k. They help in increasing the production of the industrial output by providing them with raw materials and semi-finished products.

l. The waste of large scale industries like cotton and steel can be used by the cottage industry.

m. Increase in the production of goods on small scale increase the income of the people. The rise in income improves the standard of living.

n. Cottage industry is labour intensive while labour is cheap in subcontinental areas, so the production of cottage industry is cheaper.

o. The development of cottage industry reduces the pressure of population on land and increases the income of the people.

Question 6.
Explain the role played by SSI in the development of Indian Economy.
Answer:
The role played by SSI in the development of Indian economy is as follows:

  • It produces a wide variety of products.
  • Creating employment opportunities in urban and rural areas.
  • Technology up gradation.
  • Quality Enhancement.
  • Supports the growth of large industries.
  • Better industrial relations.
  • Creates economic stability.
  • Creates jobs in rural areas.
  • Provide training ground for local entrepreneur.
  • Enhance demand.
  • Optimum utilization of local resources.
  • To enhance economic growth.
  • Creates economic stability.
  • To enhance people income.
  • To enhance standard of living.
  • Mobilization of resources and entrepreneurial skill.
  • Equitable distribution of income.
  • Regional dispersal of industries.
  • Provides opportunities for development of technology.
  • Promotes exports.

Question 7.
Explain the problems faced by small scale industries in India.
Answer:
The major problems faced by SSIs in India are:
(i) External and Internal problems: External problems results from factors beyond the control of the entrepreneur. These relate to availability of power and other infrastructure facilities, availability of finance, industrial and financial regulations and the like The internal problems are related to feeble structure, faulty planning, poor management, lack of strategies, labour problems and the like.

(ii) Teething problems: An SSI has to face problems right from the day it conceives the idea of starting a unit. A project report needs to be prepared and this calls for collection of various types of data.

(iii) Licence: Obtaining licence from the Government is another major hurdle. Corruption and bureaucracy are rooted in every economy. A small entrepreneur with limited financial resources finds it very difficult to pay hefty bribes.

(iv) Finance: Small scale entrepreneurs do not have sufficient funds of their own for fixed capital investment, nor can they obtain necessary resources from institutional agencies if the latter are doubtful of the former’s ability to repay the loans.

(v) Location: Location for establishing the small business units is also a problem. “Good location is half sold”, but, entrepreneurs may not get a place where there is easy availability of financial resources, raw materials, labour, power, transport system etc.

(vi) Raw material: Continuous supply of raw material at standard price is again a problem for small enterprises. There is a chronicle problem in supplying raw material. Because of this, cost of inventory will be on a higher side which SEs cannot sustain.

(vii) Technology: Availing latest technology for manufacturing purposes is a major problem. One of the major handicaps of the small scale sector has been the absence of the latest technology which alone can ensure quality and high rate of productivity.

(viii) Marketing: Marketing the products of small units is a major disturbing factor. Lack of standardization, poor designing, poor quality, lack of quatity control, poor bargaining power are some of the problems faced by small entrepreneurs. Recoveries will be a problem and many a times the small units cannot sustain.

(ix) High Infant Mortality: Due to indiscriminate sponsoring of small units, infant mortality rate is very high.

(x) Managerial inefficiency: The success of an industry is largely determined by a satisfactory management of finance, inventory, budgeting, marketing, accounting, and manpower. Many units fall sick because of an improper handling of these areas of management.

(xi) Faulty planning: Faulty planning and inadequate appraisal of projects leads to failure of SSIs. No proper viability studies, technical or economic are carried out before units are sponsored.

Question 8.
What are the measures taken by the government for promotion of small scale industries? Do you feel the measures are adequate?
OR
What are the steps taken to solve the problems of SSI?
Answer:
Multidimensional approach has been adapted by the Central and State Government by establishing specialised institutions to promote SSIs and to offer financial support, technical support, marketing support and entrepreneurship development.
I. Institutions offering Financial Support:
Finance is the life blood of any business. In order to provide financial assistance to the entrepreneurs, both the Central and State Governments have set up a number of financial institutions besides commercial banks. Some of these are:

  • Industrial Finance Corporation of India (IFCI)
  • Industrial Credit and Investment Corporation of India (ICICI)
  • Industrial Development Bank of India (IDBI)
  • Industrial Reconstruction Bank of India (IRBI)
  • Small Industries Development Bank of India (SIDBI)

II. Institutions offering Technical Support:
In order to provide technical training to SSIs, the government has established the following institutions:

  • Central Institute of Tool Design (CITD)
  • National Institute of Design (NID)
  • Technology Development and Information Company of India Ltd.
  • Product and Process Development Centres
  • Industrial and Technical Consultancy Organisation
  • SIDO with Regional Testing Centres, Tool Design Institutes, Product and Process development Centres etc.

III. Institutions offering Marketing Support:
(i) Government Stores Purchase Programme: Under this programme, the Director General of Supplies and Disposal arranges the purchase and sale of stores required by the GOI and State governments, public sector organisations and semi government bodies.

(ii) Sub-contracting Exchange: The exchanges invite small scale units to register their spare capacity with them and approach large scale units for seeking orders for the registered units.

(iii) Trade Centres: The trade centres collect and disseminate infor¬mation relating to all types of small scale industries in the region, giving fuli details of products, capacities and prices. They provide a focal point for buyers and sellers of products.

(iv) Internal Marketing: National Small Industries Corporation (NSIC) has undertaken the marketing of certain products such as hand made paper.

(v) Exhibitions and Seminars: SIDO, besides encouraging entrepreneurs to participate in the state purchase programme, organises seminars, exhibitions and training programmes in marketing and publishing of information booklets etc.

The investment opportunities and government policies in promoting SSIs decisions are reflected in various policy decisions. These policy decisions are

  • Industrial Policy Resolution, 1956
  • EXIM policy 1994-97
  • The Pricing Policy
  • The Textile Policy
  • Policy for development of Handloom Industry
  • Policy for Khadi and Village Industries
  • Industrial Estates Programme
  • Promotion of Ancillary Industries.

The thrust areas of the Policy for small enterprises are:
1) Payment mechanism: The policy seeks to improve the payments mechanism and also to introduce legislation to enforce payments on time. This is necessary to ensure that small industries do not get into the grip of the large buyer enterprises which may also control them through equity and technology.

2) Factoring services: Factoring services have recently been introduced by the SBI in Western India in collaboration with the Small Industries Development Bank of India. At present, these factoring services accept only receivables against “first rate large and medium enterprises”.

3) Resources: The most important change is the provision of additional finance by permitting limited liability for new non-active partners and by permitting upto 24 percent equity investment by other industrial undertakings. This could encourage indirect ownership of small units by larger corporate entities.

4) Timely and Adequate credit: Small units require timely credit and financing arrangement rather than cheap credit. The scope of the single window clearance, which has been enlarged to cover project costs upto Rs. 20 lakhs and working capital upto Rs. 10 lakhs, making things easier at the entry point.

5) Nodal Agency: The SIDO has been recognised as the nodal agency to support the SSI in export promotion. An “Export Development Centre” would be set up through a network of field offices to further augment export activities of this sector.

6) Marketing: Marketing, promotion would be undertaken through cooperative, public sector institutions, other professional and marketing agencies backed up by such incentives as deemed necessary.

7) Raw material: Based on the capacity needs, tiny/smaii scale units would be given priority in the allocation of indigenous raw materials.

8) Quality: To improve the quality of goods and services of small scale units industry, associations would be encouraged and supported to establish quality counselling and other testing facilities. Technology information centres, to provide up-to-date knowledge on technology and market, would also be established. Compulsory quality control would be enforced.

Question 10.
Explain the role of commercial banks in development of SSIs.
Answer:
Role of commercial bank in development SSI:
Small businesses reiy on commercial banks for a variety of services that make it easier to develop and grow the SSI.
1. To get a loan from a commercial bank for a small business, will need to have a track record. It must show sales growth, assets and some reasonable sales projections for the company. Small businesses are the fastest-growing part of the economy. Commercial banks will compete for the business by offering a variety of interest rates and loan lengths and by reducing the amount of collateral they require to secure a loan. In short, the role of commercial banks with SSI has become increasingly personal and relationship-oriented.

2. Investment Services: One way to grow a SSI is to invest profits for additional income or growth. Commercial banks typically have an investment department that can guide you in the selection of stocks, bonds, money market accounts and real estate.

3. Corporate Credit Cards: A commercial bank will count a credit card as an unsecured loan, meaning you will not have to put up any collateral. They can issue credit cards to empiyees and instruct them to use them to make all purchases. This places the commercial bank in the role of organizing and tracking the expenses.

4. Bookkeeping: Commercial banks will help SSI with its bookkeeping. This help begins with bank statements that categorize expenses. However, commercial banks will also help a small business create profit-and-loss statements.

Question 11.
What are the remedies to prevent industrial sickness OR What are the provisions for nursing sick units? OR Write a note on preventive .measures to avoid Industrial sickness.
Answer:
(i) Programme of monitoring: A programme of monitoring and nursing during infancy is essential.

(ii) Financial institutions and banks: Financial institutions and banks should initiate necessary corrective action for sick or prone-to-sickness units based on diagnostic studies.

(iii) Restore sick units to financial health: Attempts should be made to restore sick units to financial health.

(iv) Excessive concern over unemployment: Excessive concern over unemployment resulting from the closure of a sick unit is unwarranted.

(v) The proposal visualising that the management of a unit that has lost net worth will not be allowed to manage that unit any more, needs to be reconsidered. All aspects of the case ought to be examined.

(vi) The proposal that management is responsible for mismanagement should not be allowed assistance from financial institutions even for new ventures, too, needs rethinking.

(vii) Aii the stakeholders bear sacrifices: It is important that in any scheme of reconstruction of a sick unit, all the stakeholders bear sacrifices on equitable and just basis.

(viii) Skill, technology and finance: The important criterion for take over of a sick unit by another company should be whether the company taking over the sick unit has skill, technology and finance to save it.

(ix) Debt equity ratio: Debt equity ratio ought to be realistic. Fiscal policy, too, requires rationalisation.

(x) Incentives: Incentives should be provided to professional managers helping in reviving sick units.

(xi) Treatment of capital intensive units: Treatment of capital intensive units prone to sickness has to be on a different footing than tackling of sickness in industry in general.

(xii) Government can accord priority: The government can accord priority in the allocation of scarce raw materials, extend marketing assistance and grant concessions to small units which show better record of performance.

(xiii) Separate division in BIFR: A separate division in BIFR should be set up to deal with sickness in small scale industries as small units are characterised by different sets of problems as compared to medium and large scale industries.