Meaning and Nature of Small Business

In India, the 'village and small industries sector' is made up of both 'traditional' and 'modern' small industries. This sector is usually said to have eight subgroups: handlooms, handicrafts, coir, sericulture, khadi and village industries, small scale industries and powerlooms. Of these, the last two — small scale industries and powerlooms — belong to the modern small industries, while the rest belong to the traditional industries. Taken together, village and small industries provide the largest employment opportunities in the country, which is one reason the sector is so important.

Before we can say what a small business is, we need to know how 'size' is measured in the first place. Several parameters can be used to measure the size of a business unit, including:

• the number of persons employed in the business;
• the capital invested in the business;
• the volume or value of output produced; and
• the amount of power consumed in business activities.

No single parameter is free of limitations, and the measure chosen can vary depending on the need. The definition used by the Government of India to describe small industries is based on the investment in plant and machinery. This measure suits India's socio-economic setting, where capital is scarce and labour is abundant.

The MSMED Act, 2006

The growth of a large services sector, and the fact that expanding small units were steadily becoming medium units and needed higher technology to stay competitive in a fast-globalising world, made it necessary to bring micro, small and medium enterprises — including services — under a single legal framework. The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 does exactly this: it addresses issues of definition, credit, marketing and technology upgradation, and it also brings medium-scale and service-related enterprises within its purview. The Act came into force with effect from October 2006, and under it enterprises are classified into two broad categories — manufacturing and services.

For manufacturing enterprises (those engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the Industries (Development and Regulation) Act, 1951), the size is judged by the investment in plant and machinery. For service enterprises (those providing or rendering services), the size is judged by the investment in equipment. The investment limits under the 2006 Act are set out below.

Note: while calculating the investment in plant and machinery, the cost of pollution control, research and development, industrial safety devices and such other items is excluded.

Village industries and cottage industries …