NCERT Solutions for Class 11 Business Studies Chapter 9: MSME and Business Entrepreneurship

Chapter at a glance

Note: From April 1, 2025 the government raised the limits to micro ₹ 2.5 crore / ₹ 10 crore, small ₹ 25 crore / ₹ 100 crore and medium ₹ 125 crore / ₹ 500 crore (investment / turnover). Answers below use the textbook figures.

Exercises – Very Short Answer Questions

Question VSA – Q1

Which year the MSMED Act passed?

Answer

The Micro, Small and Medium Enterprises Development (MSMED) Act was passed in 2006 and came into force in October 2006.

Question VSA – Q2

What is the micro enterprise?

Answer

A micro enterprise is the smallest category of MSME — an enterprise whose investment in plant and machinery (or equipment) does not exceed ₹ 1 crore and annual turnover does not exceed ₹ 5 crore (as per the textbook classification).

Question VSA – Q3

What is a cottage industry?

Answer

Cottage industries (also called rural or traditional industries) are small units organised by individuals, mostly at home, with family labour, using simple equipment, local raw materials and traditional skills to produce products such as handicrafts, handloom cloth and pottery. They are not defined by capital investment criteria.

Question VSA – Q4

What is meant by Village and Khadi Industry?

Answer

A village industry is any industry located in a rural area that produces goods or renders services, with or without the use of power, in which the fixed capital investment per artisan/worker does not exceed the limit specified by the Central Government. Khadi refers to hand-spun and hand-woven cloth. Together, Khadi and Village Industries are promoted by the Khadi and Village Industries Commission (KVIC) to provide employment in rural areas.

Question VSA – Q5

Give any two characteristics of entrepreneurship development.

Answer

1. Systematic activity — it requires knowledge, skills and competencies that can be acquired and developed through education, training and experience.
2. Risk-taking and creativity — entrepreneurs take calculated risks and innovate to create value.

(Other characteristics: lawful and purposeful activity, organisation of factors of production.)

Exercises – Short Answer Questions

Question SA – Q1

What is MSME?

Answer

MSME stands for Micro, Small and Medium Enterprises. Under the MSMED Act, 2006 they are enterprises engaged in manufacturing or services, classified on the basis of investment in plant and machinery/equipment and annual turnover:

MSMEs form the backbone of the Indian economy in terms of employment, production and exports.

Question SA – Q2

State the meaning of entrepreneurship.

Answer

Entrepreneurship is the process of setting up one’s own business, as distinct from pursuing any other economic activity like employment or a profession. It involves identifying an opportunity, mobilising resources, organising factors of production, taking risks and innovating to create value. The person who does this is the entrepreneur, the process is entrepreneurship and the outcome is the enterprise.

Question SA – Q3

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

Answer

Yes, they are closely connected:

1. MSMEs are the starting point for entrepreneurs — most entrepreneurs begin with small enterprises because they need less capital and simple technology; MSMEs thus provide an outlet for entrepreneurial talent.
2. Entrepreneurship drives MSME growth — innovation, risk-taking and creativity of entrepreneurs create new MSMEs, help them grow into larger firms and make them competitive.

Question SA – Q4

State the role of MSME in development of a country.

Answer

1. Employment generation — second largest employer after agriculture; labour-intensive.
2. Balanced regional development — units can be set up in rural and backward areas.
3. Contribution to production and GDP — produce a wide range of goods.
4. Exports — significant share of India’s exports.
5. Mobilisation of local resources — use local raw materials, savings and skills.
6. Entrepreneurship development and self-reliance.
7. Equitable distribution of income and reduction of concentration of wealth.

Question SA – Q5

What are the different parameters used to measure the size of MSME?

Answer

The size of an MSME is measured mainly by:

1. Investment in plant and machinery or equipment (capital invested), and
2. Annual turnover (sales).

These two criteria together are used for classifying enterprises into micro, small and medium. Other indicators of size include the number of employees and the value of output.

Question SA – Q6

State the meaning of Village and Khadi industries.

Answer

Village industries are industries located in rural areas that produce goods or render services, with or without power, where fixed capital investment per artisan or worker is within the limit specified by the government — e.g. pottery, oil extraction (ghani), leather work, bee-keeping.

Khadi industry involves hand-spinning and hand-weaving of cotton, silk or woollen cloth. These industries provide employment in rural areas and are promoted by the KVIC.

Question SA – Q7

State any three major problems faced by MSMEs.

Answer

1. Finance — inadequate capital and difficulty in getting loans because of lack of security and creditworthiness.
2. Marketing — weak marketing organisation; dependence on middlemen who exploit them; competition from large firms.
3. Raw materials — difficulty in getting adequate quantity and quality of raw materials at reasonable prices.

(Others: lack of managerial skills, low quality standards, under-utilisation of capacity, outdated technology, sickness, global competition.)

Exercises – Long Answer Questions

Question LA – Q1

How do small scale industries contribute to the socio-economic development of India? Discuss.

Answer

1. Large share of industrial units — small industries account for about 95% of industrial units.
2. Employment — they are the second largest employer after agriculture; labour-intensive techniques create jobs at low capital cost.
3. Contribution to exports — about 45–50% of India’s exports.
4. Production — supply a wide range of consumer goods (food products, garments, leather goods, plastic goods, etc.).
5. Balanced regional development — can be set up anywhere, including villages and backward areas, reducing migration to cities.
6. Equitable distribution of income — ownership is spread among many small entrepreneurs.
7. Use of local resources — local raw materials, skills and savings are mobilised.
8. Opportunities for entrepreneurship — easy entry, low investment.
9. Low cost of production and flexibility to customise products.
10. Quick decision making and personal touch.

Question LA – Q2

Describe the role of small business in rural India.

Answer

1. Employment in rural areas — cottage and village industries provide jobs to artisans, women and landless labour, reducing disguised unemployment in agriculture.
2. Additional income — supplementary income to farm families during off-season.
3. Checking migration to urban areas by providing local livelihood.
4. Use of local resources and skills — handloom, handicrafts, pottery, food processing use local materials and traditional skills.
5. Reduction of poverty and income inequality.
6. Development of rural infrastructure as industries come up.
7. Preservation of traditional crafts and culture.
8. Promotion of self-reliance and entrepreneurship among rural people, including women’s self-help groups.

Question LA – Q3

Discuss the problems faced by small scale industries.

Answer

1. Finance — inadequate capital, limited access to institutional credit due to lack of collateral; dependence on moneylenders.
2. Raw materials — difficulty in obtaining adequate and good-quality raw materials at fair prices.
3. Managerial skills — owner-managers often lack professional management knowledge.
4. Marketing — weak marketing; dependence on middlemen; difficulty in competing with large firms and brands.
5. Quality — inability to maintain quality standards; lack of investment in research.
6. Capacity utilisation — lack of demand or power shortages cause under-utilisation.
7. Technology — outdated technology leads to low productivity and high costs.
8. Sickness — many units become sick due to the above problems.
9. Global competition — competition from imports and MNCs after liberalisation; quality and environmental standards in export markets.
10. Delayed payments from large buyers.

Question LA – Q4

What measures has the government taken to solve the problem of finance and marketing in the small scale sector?

Answer

Finance

1. Priority sector lending — banks must lend a certain share of credit to MSMEs.
2. SIDBI — apex institution for financing and development of small industries; refinances banks.
3. Credit Guarantee Fund Trust for MSEs (CGTMSE) — collateral-free loans backed by guarantee.
4. MUDRA loans (Pradhan Mantri Mudra Yojana) for micro units; Stand-Up India; Prime Minister’s Employment Generation Programme (PMEGP) with subsidy.
5. State Financial Corporations and NABARD (for rural industries).
6. Interest subvention and credit-linked capital subsidy schemes.

Marketing

1. National Small Industries Corporation (NSIC) — helps in marketing, government purchase programmes, exhibitions.
2. Public procurement policy — government departments must buy a minimum share (25%) of purchases from MSEs; reservation of certain items.
3. Government e-Marketplace (GeM) for MSMEs to sell to government.
4. Trade fairs and exhibitions, export promotion support, cluster development.
5. KVIC for khadi and village industry products; Rural Non-Farm Development Agency.
6. MSMED Act provisions on delayed payments and the TReDS platform for invoice discounting.

Question LA – Q5

‘Innovation is integral to MSME’. Discuss giving reasons to your answer.

Answer

Innovation — introducing new products, processes, methods or markets — is essential for MSMEs because:

1. Competitiveness — MSMEs cannot match large firms in scale or resources; innovation (unique products, better quality, lower cost) gives them an edge.
2. Survival in a globalised economy — imports and MNCs compete in the same markets; continuous innovation keeps MSMEs relevant.
3. Flexibility — small size allows quick experimentation and adaptation to customer needs, making MSMEs natural innovators.
4. Niche markets — innovative MSMEs serve specialised needs that large firms ignore.
5. Growth — innovative start-ups grow into larger enterprises.
6. Productivity and efficiency — new processes and technology reduce costs.
7. Use of IPR — patents, designs and GI tags help MSMEs monetise innovations.
8. Government support — Start-up India, Atal Innovation Mission, technology upgradation schemes encourage innovation.

Hence innovation is integral to the success of MSMEs.

Question LA – Q6

‘Creativity and Innovation is the key to MSME’. Justify the statement.

Answer

Creativity is the ability to generate new and useful ideas; innovation is converting these ideas into products, services or processes that create value.

Justification

1. Identifying opportunities — creative entrepreneurs spot unmet needs and start MSMEs to meet them.
2. Product differentiation — creative designs and innovative features help MSMEs stand out against big brands (e.g. handicrafts with modern designs).
3. Cost reduction — innovative processes and frugal engineering lower costs.
4. Customer satisfaction — innovation allows customised products and better services.
5. Use of local resources — creativity finds new uses for local materials and traditional skills (e.g. GI-tagged products).
6. Adaptation to change — innovation helps MSMEs cope with changes in technology, tastes and competition.
7. Export potential — innovative, quality products open global markets.
8. Entrepreneurial growth — creative start-ups attract investment and grow.

Without creativity and innovation, MSMEs would struggle to compete; therefore they are indeed the key to MSME success.

Topic checklist

• MSMED Act, 2006 and classification of MSMEs
• Village, khadi and cottage industries
• Role of MSMEs in development and in rural India
• Problems of MSMEs and government assistance (finance, marketing)
• Entrepreneurship: meaning and characteristics
• Innovation, creativity, Start-up India, IPR

Total questions answered: 18 of 18