Self-Employment: Meaning, Characteristics and Types of Small Business, Small-Scale, Tiny, Village and Cottage Industries (For CBSE, ICSE, IAS, NET, NRA 2022)

Doorsteptutor material for competitive exams is prepared by world's top subject experts: get questions, notes, tests, video lectures and more- for all subjects of your exam.

Meaning of Small Business

When somebody asks you, ‘what is a small business’ , you would say that a business which is:

  • Small in size,
  • Requires low capital investment,
  • Employs small number of workers,
  • Volume or value of output is low, may be called as small business.

The size, capital investment, number of employees, volume of output as well as value of output etc. are the general parameters of measuring a business enterprise.

A small business as a business which is actively managed by its owners, operating within the local area and relatively small in size. However, the Government of India has considered the fixed capital investment in plant and machinery as the only criteria to define a small industrial unit in our country. Up to the year 1958, an industrial unit in which fixed capital investment was less than ₹ 5 lakh and employing workers of up to 50 if using power, and up to 100 if not using power was considered as a small business. This limit has been changed by the government from time to time. In the year 1960, the employment criterion was dropped. As per the latest changes with effect from 21 December 1999 the investment limit in plant and machinery of small-scale sector has been raised up to ₹ 10 million (one crore) . The plants and machinery may be held on ownership basis, on lease or on hire purchase. The limit of rupees one crore is subject to the condition that the unit is not owned, controlled or subsidiary of any other industrial undertaking.

Characteristics of Small Business

From the above discussion now, we can identify the main characteristics of small business as:

Characteristics of Small Business in India

Types of Small Business

In India we find different types of small business. They may be categorised on the basis of investment in fixed capital in plant and machinery or on the basis of nature or place of operation. Following are some of the main types of small business.

Types of Small Business

Let us have a brief idea of these small business.

Small-Scale Industries

A small-scale industrial unit is one in which fixed capital investment in plant and machinery does not exceed ₹ One crore. In case of certain export promotion units this investment ceiling can be raised up to ₹ 5 crores.

Tiny Industries

A business unit whose total fixed capital investment in plant and machinery does not exceed ₹ 25 lakhs are called a tiny industry.

Ancillary Industrial Undertakings

When a small-scale industry supplies not less than 50 % of its production to another industry, it is called as ancillary industrial undertaking. The fixed capital investment limit of ₹ One crore also applies to it. If an ancillary unit is owned by some other business unit, its losses its status of small business.

Village Industries

A unit that is located in rural area and whose fixed capital investment in plant and machinery does not exceed ₹ 50,000 per artisan or worker is termed as village industry.

Cottage Industries

These are small manufacturing units producing simple products involving some specific art or skill like handicrafts, filigree etc. They use simple equipment with indigenous technology for production. Cottage industries are carried on wholly or primarily with the help of members of the family either on a whole or part-time basis. These units are not defined by the ceiling of capital of investment

Micro Business Enterprises

The fixed capital investment of in plant and machinery of these enterprises does not exceed rupees one lakh.

Small-Scale Service and Business (Industry Related) Enterprises (SSSBE)

In these businesses the investment limit in fixed assets of plant and machinery does not exceed ₹ 10 lakhs. The main business enterprises included under this category are – Advertising agency, marketing consultancy, Typing centre, Photo copying centre (Xeroxing) , Industrial testing laboratory, Auto repair and garages, laundry and dry cleaning, tailoring, STD/ISD booths, beauty parlour, crèches, etc.

Trading Units

These are usually in the form of small retailers found in the marketplaces.

Developed by: