Entrepreneurship

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ACADEMY OF COMMERCE & IT
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PAPER A: - ENTREPRENUERSHIP Chapter1:- Concept of Entrepreneur and Entrepreneurship Qno1. Meaning of an Entrepreneur The word entrepreneur is derived from the French word Entreprendre which means to undertake i.e., individuals who undertake the risk of new enterprise. The word entrepreneur, therefore, first appeared in the French language in the beginning of the sixteenth century. According to Cantilon, An entrepreneur is a person who buys factor services at certain prices with a view to selling its product at uncertain prices. According to J.B. Say, an entrepreneur is the agent who unites all the factors of production and who finds in value of the products the re-establishment of the entire capital the employees, and the value of wages, the interest and the rent which he plays as well as the profits belonging to himself. He may or may not supply capital but he must have judgement, perseverance and the knowledge of the world of business. He must possess the art of superintendence and administration. According to F.H. Knight, entrepreneurs are a specialized group of persons who bear risks and deal with uncertainty, According to Peter F. Drucker, defines an entrepreneur as one who always searches for change, responds to it and exploits it as an opportunity. According to International Labour Organization (ILO), defines entrepreneurs as those people who have the ability to see and evaluate business opportunities, together with the necessary resources to take advantage to them and to initiate action to ensure success. Thus, it is clear from the above definitions, that an entrepreneur is a visionary and an integrated man with outstanding leadership qualities with a desire to excel, the entrepreneur, gives top priority to Research and development. He always works for the well-being of the society. Entrepreneur is one creates his own business. An entrepreneur is a person who perceives a need and then brings together manpower, material and capital required to meet the need. Qno2. Characteristics of successful Entrepreneurs Characteristics Traits Self-confidence Confidence, independence, individuality, optimism Task-oriented Need for achievement, profit-oriented persistence, perseverance, determination, hard-work, drive, energy, initiative. Risk bearer Risk-taking ability, likes challenges Leadership Leadership behavior gets along well with others, responsive to suggestions and criticisms. Originality Innovative, creative, flexible, resourceful, versatile, knowledgeable. Future-oriented Foresight perceptive Qno3. Activities or Functions of Entrepreneurs An entrepreneur begins activating his mind and senses taking from the time he dreams of his own venture till the time he actually achieves his dream. His primary functions include seeking opportunities, organizing and co-coordinating agents/ factors of production mobilizing resources and so on. Thus, it can be concluded that an entrepreneur has to act as mother who give birth to an enterprise as well as a father it going on after taking due care of it. The main functions of the entrepreneurs are gives by different expert such as: 2011 WASIM RAJA ALL RIGHTS AND CONTENTS RESERVED LOG ON: - www.acit.co.in
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Kilbys thirteen functions of entrepreneurs divided into four groups as follows: A. Exchange Relationship:1. Perceiving market opportunities 2. Gaining command over scarce resources 3. Purchasing inputs 4. Marketing of the products and responding to competition. B. Political Administration:1. Dealing with the public bureaucracy (concession, licenses and taxes) 2. Managing human relation within the firm. 3. Managing customer and supplier relations. C. Managing Control:1. Managing finance 2. Managing production. D. Technology:1. Acquiring and overseeing assembly of the factory 2. Industrial engineering. 3. Upgrading process and product quality. 4. Introducing new production techniques and products. Diagrammatical presentation:Functions of Entrepreneurs Entrepren. Promotional Managerial Commercial Functions Functions Functions Functions Innovation Discovery of an idea Planning Production Risk taking Detailed investigation Organizing Marketing Organization building Assembling the Staffing Personnel requirements Directing Accounting Financing the Leadership Finance proposition Communication Motivation Co-ordination Controlling Qno4. Types of Entrepreneurs Different experts gave different classification of entrepreneurs based upon ownership pattern, personality traits, and nature of business and so on. Entrepreneurs can therefore be classified as:A. Classification on the basis of Ownership Second-generation operators of family-owned business: - They are the individuals who have inherited the business from their fathers and forefathers. Franchisees: - Franchisee has been derived from a French word which means free. Method of doing business wherein the parent owner (the franchiser) licenses trademarks and tried and proven methods of doing business to a franchisee in exchange for a recurring payment. Owner-managers: - When a person buys a business from the founder and then his time and resources in it he is called the owner-manager. B. Classification on the basis of personality traits and their style of running the business
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The Achiever: These types of entrepreneurs have personal desires to excel. The only drive that pushes them is the desire to achieve something in life the desire to make a mark in society, the desire to prove their excellence. No matter how many hurdles come in their way, they are totally determined. They do not need any external stimulus but are self-driven. The Induced Entrepreneur: These types of entrepreneurs are induced by some external factors to start a business. The external factors could be like supporting government policies, unemployment, family support, facilitating institutional support, etc. These types of entrepreneur run out to be more realistic in their approach. The Idea Generator: These kinds of entrepreneurs are highly creative people who are always in search of innovative ideas for setting up new business ventures. They have the ability to sense the demand much ahead of others. They enjoy the first movers advantage and are able to skim higher profits from the market. They can rightly be given the title of essence of entrepreneurship. The Real Manager: The real managers run the business in a systematic manner. They analyse business situations, assess the demands of future, both in terms of opportunities and threats and then take actions based on the above assessments. They believe 10 incremental changes rather than radical transformations. The Real Achievers: The real achievers are full of life. They are looking for the achievement of not even their own goals but also of people associated with themselves like employees, suppliers and distributors. C. Classification based on the type of business Industrial Entrepreneur: - Industrial entrepreneur is an entrepreneur who is into manufacturing of a product. He identifies the needs and wants of customers and accordingly manufactures products to satisfy these needs and wants. It would include all the entrepreneurs essentially into manufacturing. Trading Entrepreneurs: - Trading entrepreneur is one who undertakes trading activities such as buying and selling of goods and services and is not concerned with the manufacturing of products. He identifies potential markets, stimulates demands and generates interests among buyers to purchase a product. Corporate Entrepreneur: - Corporate entrepreneur is a person who demonstrates his innovative skill in organizing and managing a corporate undertaking. Agricultural Entrepreneur: - Agricultural entrepreneurs are those entrepreneurs who undertake business related to agricultural activities like farm equipments, fertilizers and other inputs of agriculture. They provide supportive products that can increase the agricultural biotechnologies, mechanization and improvement agricultural yield. D. Based on the stages of development First generation Entrepreneur: - First-generation entrepreneur is one who starts an industrially by means of an innovative skill. He is essentially an innovator combining different technologies to produce a marketable product or service. Modern Entrepreneur: - A modern entrepreneur is one who undertakes business to satisfy the contemporary demands of the market. They undertake those ventures which suit the current socio-cultural trends.
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Classical Entrepreneur: - A classical entrepreneurs a stereo-type entrepreneur is one whose aim is to maximize the economic returns at a level consistent with the survival of the firm, with or without element of growth. E. Other Entrepreneurs Innovatating Entrepreneurs Adoptive or Imitative Entrepreneurs Fabian Entrepreneurs Drone Entrepreneurs Individual and Institutional Entrepreneurs Entrepreneurs by Inheritance Technologist Entrepreneur Qno5. Meaning of an Entrepreneurship The concept of entrepreneurship is an age-old phenomenon that relates to the vision of an entrepreneur as well as its implementation by him. Entrepreneurship is a creative and innovative response to the environment. Entrepreneurship is a composite skill that is a mixture of many qualities and traits such as imagination, risk taking ability to harness factors of production, i.e., land, labour, technology and various intangible factors. Entrepreneurship culture implies a set of values, norms and treats that are conducive to the growth of entrepreneurship. It is the organizational culture that focuses on new opportunities and creation of a set up where these opportunities can be pursued earnestly. Entrepreneurship plays a dominant role in the growth and development of an economy. Entrepreneurship can solve the problems like unemployment, concentration of economic power in the hands of very imbalanced regional development. Entrepreneurship is the ability to start a new enterprise to make more profits by way of producing or marketing goods and services to meet the needs and requirements of customers. It is the ability and quality of entrepreneur to identify an investment opportunity and to organize an enterprise in order to contribute for the real economic growth. According to A.H. Cole, Entrepreneurship is the purposeful activity of an individual or a group of associated individuals, undertaken to initiate, maintain or organize a profit-oriented business unit for the production or distribution of economic goods and services. According to Peter Drucker, Entrepreneurship is neither a science nor an art. It is a practice. It has a knowledge base. Knowledge in entrepreneurship is a means to an end. Indeed, what constitutes knowledge practice is largely defined by the ends, that is, by the practice. According to William Diamond, Entrepreneurship is equivalent to enterprise which involves the willingness to assume risks in undertaking economic activities particularly a new one. It may involve an innovation but not necessarily so. It always involves risk-taking and decision-making, although neither risk nor decision- making may be a great significance. Thus, it is clear from the above definitions that entrepreneurship can be defined as creation of value through people working together to implement an idea through the application of drive and willingness to take risk. Qno6. Characteristics of Entrepreneurship The main features of entrepreneurship are: 2011 WASIM RAJA ALL RIGHTS AND CONTENTS RESERVED LOG ON: - www.acit.co.in
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1. Economic Activity: - Entrepreneurship is basically an economic activity because it involves creation and operation of a new enterprise. It is primarily concerned with satisfying the needs of customer with the help of production and distribution of goods and services. 2. Innovation: - Entrepreneurship is an innovative and a creative activity. It involves doing things in a new and better way. It involves doing things in a new and better way. Entrepreneurship is an automatic and creative response to changes in the environment. 3. Decision-making:- Decision-making activity of entrepreneur is one of the important features of entrepreneurship. Entrepreneur takes decisions regarding activities of the enterprise. He decides about the type of business to be done and the ways of doing it. An entrepreneur has to make decision under uncertainty and he has to take actions with unknown and unpredictable results. 4. Function of high achievement: - Entrepreneurship is a function of high achievement. People having high need for achievement are more likely to succeed as entrepreneurs. The achievement motive is relatively stable because profit is merely a measure of success. 5. Organization building: - Entrepreneurship implies the skill to build an organization. Organization building is the most critical ability for entrepreneurial development. This skill means that one can build an organization effectively by delegating responsibility to others. Entrepreneurs need to be good leaders and excellent administrators to be a successful organization builder. 6. Managerial Skill: - Managerial skills and leadership are the most important characteristics of entrepreneurship. Entrepreneurship requires tactful handling of various situations involving risk and uncertainties. To be a successful entrepreneur, one must have more than the drive to earn profits and a mass wealth. The entrepreneur must have the ability and skill to lead and manage the affairs of enterprise. 7. Risk-bearing Capacity: - Risk is the part and parcel of entrepreneurship. An entrepreneur assumes the uncertainty of future. It is always risky to start a new enterprise and doing something new and differently. The functions of entrepreneurship are greatly influenced by various risky situations and factors like increase in competition, change in customer needs and taste, shortage of raw material, change in government policy, and change in technology. Thus, entrepreneur needs to be a risktaker, not risk avoider. 8. Resource Mobilization:- Gap filling is the most significant feature of entrepreneurship. The job of entrepreneur is to fill the gap or make up the deficiencies which always exist in the knowledge about the production function. These deficiencies arise because all the inputs in the production function cannot be marketed. As entrepreneur has to marshal all the inputs to realize final products us, entrepreneurship is a function of input completing and gap filing. Qno7. Barriers to Entrepreneurship Entrepreneurial ventures begin with a big dream in mind of the person concerned. But to transform that dream into reality is not everyones cup of tea. This is because the entrepreneurs face a lot of troubles and problems in the process of attainment of their respective. In spite of all the efforts made by individuals and the government to promote entrepreneurship, some societies are unable to produce sufficient number of successful entrepreneurs. The problems or barriers to entrepreneurship development are as under:1. Environmental Barriers Raw-material: - Non-availability of raw material required for production of goods, especially during the peak season causes impediment in the growth of the business. In such kind of situation, competition causes increase in the price of the raw material. This problem becomes more severe if there are alternative goods or services available in market. It becomes very difficult to shift the consumer back to the former product. Labour: - Human resources have been identified as the most important resource in an organization. But unfortunately, there is always a dearth of the desired manpower in an organization-either because of the lack of skilled labour in the market or because of lack of
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committed and loyal employees in the organization. Both these factors cause implements in the growth of the organization. Machinery: - Good machineries are required in the organization for production and operation of goods. These machineries come at a cost and because of rapid technological developments they also become obsolete very soon and need to be replaced, which requires lot of cash-in-hand. This is very difficult to maintain, especially in a small business organization. Land and Building: - Acquisition of land and construction of building at prime location with respect to business requires expenditure of large amount of scarce cash, especially in the small organizations. An alternative approach could be acquiring land on lease or rent. But this becomes a matter of constant concern for the entrepreneur. Other infrastructure requirements: - Apart from the factors of production mentioned above, there are other infrastructure requirements of the business and which when not present in adequate amount, can further cause barriers to the growth of business. 2. Financial Barriers: - Availability of funds is one of the most important ingredients required for the successful running of a business. There are various methods by which entrepreneur arranges for funds like his own savings, borrowing from friends and relatives, bank and other institutional bodies supporting new ventures. If there is a delay in the release or payments by the source of finance, it causes delay in starting and or running business. 3. Personal Barriers: - These barriers are caused by emotional blocks of an individual. These barriers cause mental obstruction to the individual and lead to the failure in business. Some of the personal barriers are as follows:- Lack of confidence; Lack of dependability on others; Lack of sustained motivation; Lack of patience; Inability to dream.
Qno8. Distinction between Entrepreneur and Entrepreneurship Entrepreneur Entrepreneurship Entrepreneur is a person Entrepreneurship is a process Entrepreneur is an organizer Entrepreneurship the organized form of Entrepreneur is risk-taker initiative Entrepreneur is innovator Entrepreneurship is risk-taking activity Entrepreneur is a good planner Entrepreneurship is the process of innovation Entrepreneur is a leader Entrepreneurship is the planning for successful Entrepreneur is a decision-maker performance Entrepreneur is a visualize Entrepreneurship is the crux of leadership Entrepreneur is an administrator Entrepreneurship is nothing but a decision Entrepreneur is an initiator making activity Entrepreneurship is the vision Entrepreneurship is the administration process Entrepreneurship is taking an initiative Qno9. Distinction between Entrepreneur and Manager Entrepreneur Manager Entrepreneur is an innovator Manager keeps in managing the business on Entrepreneur is a moderate established rules, policies and procedures. Entrepreneur is not guided by the motive to Manager does not undertake risk-taker. profit. He continuously puts his efforts for Manager is interested in salary. His salary is achieving the goal reward of the entire process fixed and certain. in connection. Manager is salaried person and his own boss
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Entrepreneur is self-employed.
dependent upon his employer.
Qno10. Distinction between Entrepreneur and Enterprise Entrepreneur Enterprise Entrepreneur is person Enterprise is the business unit Entrepreneur is risk-taker Enterprise in the unit involving risk and Entrepreneur is decision-maker uncertainty Entrepreneur engages producing himself in and Enterprise serves as the framework within selling the product which decision concerning what to produce, Entrepreneur procures raw materials and other how much to produce, where to produce are inputs for production. taken by the entrepreneur. Enterprise implies the harmonious interrelation or service of functions and staff primarily for the purpose of making selling product or service. Enterprise utilizes the raw materials and other inputs in the process of production. Qno11. What is the role of entrepreneur in Economic Development? Entrepreneurship and economic development are intimately related. Schumpeter opines that entrepreneurial process is a major factor in economic development. The entrepreneur is the key to economic growth. Whatever be the form of economic and political set-up of the country, entrepreneurship is indispensable for economic development. Entrepreneurship has developed alongside interest in the changing role of small businesses. Small entrepreneurship has a fabulous potential in a developing country like India. So statistical data and its analysis of several countries that those small industries have grown faster than larger industries over the last couple of decades. Large industries first lost jobs while small industries created new workplace. The number of smallscale industries has grown immensely since independence. This is evident from the following:Year: - 1994-95; 1995-96; 1996-97; 1997-98; 1998-99; 1999-2000; 2000-2001; 2001-2002; 2002-2003; 2003-2004; 20042005; 2005-2006 No. of units (in lakhs) (Regd. And Unregd.):- 79.60; 82.84; 86.21; 89.21; 96.36; 97.15; 101.10; 105.21; 109.49; 113.95; 118.59; 123.42.
To conclude by the words of Meir and Baldwin, Development in an economy does not occur spontaneously as a natural consequence when economic conditions in some sense are right. A catalyst or agent is needed. This agent is entrepreneur. WOMEN ENTREPRENEURS Qno1. Concept and Definition of Women Entrepreneur Women entrepreneur may be defined as a women or a group of women who innovates imitates for adopts an economic activity. In other words, any women or a group of women who initiate organize and operate a business enterprise. According to the Government of India, a women entrepreneur is defined as, an enterprise owned and controlled by a women and enterprise owned and controlled by a women and having a minimum financial interest of 51% of the employment generated in the enterprises to women. Just as entrepreneurs, women entrepreneurs are those who generate business ideas or select the best opportunity, mobilizes resources, combine the factors of production, undertake risk and operate the enterprise in the most effectiveness with a new to earn profit. Qno2. Role of women entrepreneurs Like a male entrepreneur, a women entrepreneur performs different functions of different nature some of them are: 2011 WASIM RAJA ALL RIGHTS AND CONTENTS RESERVED LOG ON: - www.acit.co.in
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Generating new business ideas Exploring the prospects of starting new enterprises Undertaking risks and handling of economic uncertainty Employment generation Introducing new ideas of innovation Support to familys income Overall economic growth Balanced regional development. Qno3. Scope and opportunities for women entrepreneur The modern world women has been able to overcome the hurdle of societys perception of considering them to the confined to the four walls of the house or viewing them as weak entrepreneurs caught up in limited business area such as papad making, pickle preparation food items, paintings, handicrafts, etc. They have been able for show a remarkable shift from these small entrepreneurs at ventures to modern, technology-based business ventures such as: Computer services and information dissemination. Trading in computer stationery Computer maintenance Travel and tourism Quality testing, quality control laboratories Sub-assemblies of electronic products Nutrition clubs in schools and offices Poster and indoor plant library Recreation centers for old people Culture centers Screen printing, photograph and video shooting Stuffed soft toys, wooden toys Mini laundry, community eating centers Community kitchens Distributing and trading of house hold provision as well as saris, dress materials, etc. Job contracts for packaging of goods Photocopying, typing centres Beauty parlors Communication centres like STD booths, cyber cafes, etc. Qno4. Opportunities for women in semi-urban areas Considering the socio-economic, cultural and educational status and the motivational of women in semi-urban, particularly projects with low investments, low technical know-how and assured market are suggested for the improvement opportunities identified for semi-urban women are enlisted below: Production of liquid soap, soap powder, detergents, deodorants, etc. Office stationery like cushion pads, germ, ink pads etc. Convenience readymade, instant food products including pickles, spices, papads etc. Community kitchens and communication services Different types of training and coaching classes Child care centres and culture canters for children
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Nursery classes Manufacturing of leather goods Garments Qno5. Problems of women entrepreneurs Women entrepreneurs encounter two sets of problem, viz. general problems of entrepreneurs and problems specific to women entrepreneurs. These are as follows:1. Problem of finance: - Finance is regarded as life-blood for any enterprise, be it big or small. However women entrepreneurs suffer from shortage of finance on two counts. Firstly, women do not generally have property on their names access to the external sources of funds is limited. Secondly, the banks also consider women less credit-worthy and discourage women borrowers on the belief that they can at any time level their business. Given such situation, women entrepreneurs are bound to rely on their own savings, if any and loan from friends and relatives who are expectedly meager and negligible. Thus, women entrepreneurs fall due to the shortage of finance. 2. Scarcity of raw-material: - Most of the women entrepreneurs are plagued by scarcity of raw material and necessary inputs. Added to this is the high price of raw material, on the one hand and getting raw material at the minimum of discount, on the other. 3. Stiff Competition: - Women entrepreneurs do not have organization setup pump in a lot of money for canvassing and advertisement. Thus, they have to face a stiff competition for marketing their products with both organized sector and their male counterparts. Such a competition ultimately results in the liquidation of women enterprises. 4. Limited Mobility: - unlike men, women mobility in India limited due to various reasons. A single women asking for room is still looked upon suspicion. Procedural formalities involving in starting an enterprise coupled with the officials humiliating attitude towards women compels them to give attitude towards women compels them to give up idea of starting an enterprise. 5. Family ties: - In India, it is mainly a womans duty to look after the children and other members of the family. Man plays secondary role. In case of married women, she has to strike a fine balance between her business and family. Her total involvement in family leaves little or no energy and time to devote for business. Support and approval of husbands seem necessary condition for womens entry into business. Accordingly, the educational level and family background of husbands positively influence womens entry into business activities. 6. Lack of education: - In India, around three-fifths (60%) of women are still illiterate. Illiteracy is the root cause of socio-economic problems. Due to the lack of education and that too qualitative education, women are not aware of business, technology and market knowledge. Also, lack of education causes low achievement motivation among women. 7. Low risk bearing ability: - Women in India lead a protected life. They are less educated and economically not self-dependent. All these reduce their ability to bear risk involved in running an enterprise. Risk-bearing is an essential requisite of a successful entrepreneur. In addition to above problems, inadequate infrastructural facilities, shortage of power, high cost of production, social attitude, low for achievement and social-economic constraints also hold the women back from entering into business. Qno6. Role of women entrepreneurs Associations With the growth of women entrepreneurs, a few associations of women entrepreneurs have been set up both at international and national levels. The main purpose of these associations is to create a congenial environment for developing women entrepreneurship in rural urban areas. These associations seek to achieve the following objectives: To provide a meeting ground for women entrepreneurs; To promote and develop feeling of unity and brotherhood among the entrepreneurs; To develop self-confidence and hope among female entrepreneurs;
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To present the problems of women entrepreneurs before the concerned authorities for consideration and redressed; To secure various concessions, subsidies and assistance for women entrepreneurs; To conduct entrepreneurial development programmes for women. Qno7. Development of women entrepreneurs Under the Seventh Five Year Plan, a special chapter covered Integration of women in Development. In this regard the plan suggested:1. To treat women as specific in target groups in all development programmer. 2. To properly diversity vocational training for women to suit their varied needs and skills. 3. To encourage appropriate technologies, equipments and practices for reducing their drudgery and increase their productivity for women to suit their varied needs and skills. 4. To provide marketing assistance at the state level. 5. To increase womens participation in decision making. The new industrial policy of the government of India has stressed the need for conducting special entrepreneurship programmers for women. In addition to above, UNESCO and the education ministers in different countries should provide necessary literature, course books and publication for the benefit of women students. International bodies have also paid attention to the economic problems of the women. Several institutional arrangements have been made to protect women entrepreneurship. In the US, small business administration established an office of womens business enterprise in 1980. This agency makes special efforts to assist. It offers courses in counseling and publication on everything from marketing to accounting, with specific on computing, selling, dry cleaning, fish farming etc. In India the Federation of India Chambers of Commerce and Industry (FICCI), FICCI Ladies Organization, National Alliance of Young Entrepreneurs (NAYE) and other voluntary agencies assist women entrepreneurs. The nationalized banks and state financial corporation advance loan to women entrepreneurs on preferential basis. State industrial development corporation and district industries centers provide loans, subsidies and grants to small scale and women entrepreneurs. State level agencies assist women entrepreneurs in preparing project reports, buying machinery and building, training and hiring staff. RURAL ENTREPRENEURSHIP Qno1. Meaning of Rural Entrepreneurship Rural entrepreneurship can simply be defined as entrepreneurship emerging in rural areas is rural entrepreneurship. In other words, establishing industrial units in the rural areas refers to rural entrepreneurship or rural entrepreneurship implies rural industrialization. Qno2. Need for Rural Entrepreneurship The need for rural entrepreneurship for developing industries in the rural areas is imbued with multiplicity of justifications as given below:1. Rural industries being labor intensive have high potential in employment generation. Thus, they serve as an aid to the widespread problems of disguised unemployment or under-employment stalking the rural territory. 2. By providing employment, these industries have also high potential for income generation in the rural areas. These, thus, help in reducing disparities in income between rural and urban areas. 3. These industries encourage dispersal of economic activities in the rural areas and thus, promote balanced regional development. 4. Development of industries in the rural areas also helps build up village republics. 5. Rural industries also help protect and promote the art and creativity, i.e., the age-old-rich heritage of the country.
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6. Rural industrialization fosters economic development in rural areas. This curbs rural-urban migration, on the one-hand, and also lessens the disproportionate growth in the cities, reduces growth of slums, social tensions, and atmospheric pollution, on the other. 7. Last but not least, rural industries being environment friendly lead to development without destruction, i.e., the most desideratum of the time. Qno3. Problems of Rural Entrepreneurship Developing entrepreneurship especially rural entrepreneurship is as important is not so easy. It is constrained with several problems. The general bottle-necks in the development of village industries are financial constraints, lack of technical know-how, lack of training and extension services, management problems, lack of quality control, high cost of production due to high input cost, lack of communication and market information, poor quality of raw materials, lack of storage and warehousing facilities, obsolete and primitive technology and lack of promotional strategy. According to the Ninth Plan, the major problems faced in developing entrepreneurship in rural areas are:(a) Inadequate flow of credit; (b) Use of obsolete technology, machinery and equipment; (c) Poor quality standards, and (d) Inadequate infrastructural facilities. One of the major problems faced in developing entrepreneurship in rural areas is lack of awareness and knowledge about the importance of developing industries in rural areas. Added to this is disinterest shown by rural people towards assuming the career as an entrepreneur for one reason or other. Rural/village people generally want to take up salaried employment because of assured income, lesser hours of work, lesser degree of responsibility, etc. Further, the rural people are generally not aware about the entrepreneurial opportunities available and also about support organizations and other information required to take the first step in their entrepreneurial career. Even those who are aware about the facilities and support system for starting entrepreneurial career find organizational climate to be not so helpful. Thus, the environment in the family, society and the support system is generally not conducive to encourage the rural people to consider selfemployment and entrepreneurial career as an option to salaried employment. Qno4. How to Develop Rural Entrepreneurship Establishing an industry and thereby developing entrepreneurship is not one-man activity. In fact, it involves multi-prolonged activities. The following measures are suggested for developing entrepreneurship in the rural areas in the country. 1. Raw material is a must for any industry. However, the non-availability of raw-materials accompanied by their prohibitive cost has weakened the viability of these industries. Past experience bears evidence that rural industries with employment potential cannot be sustained for long unless a strong raw material-base is created in rural areas itself. Therefore, an urgent policy is called for to strengthen the raw material base in rural areas. 2. Finance is considered as lubricant for setting up and running an industry. Funds, therefore, need to be made available on time at soft terms and conditions to those who really need it. 3. In order to solve the problem of marketing for rural industries, common production-cummarketing centers need to be set up and developed with modern infrastructural facilities, particularly, in the areas having good production and growth potential. This would help in promoting export business. On the one hand, and bringing the buyers and sellers in close interaction avoiding middleman in between them, on the other. 4. One effective way to inculcate the entrepreneurial acumen and attitude may be imparting entrepreneurial education in the schools, colleges, and universities. That younger minds are more susceptive to be moulded is well evidenced by the popularly known Kakinada Experiments in Andhra Pradesh. 5. Proper provisions need to be made to impart the institutional training to orient the entrepreneurs in specific products and trades so that the local resources can be harnessed properly.
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ENTREPRENEURSHIP DEVELOPMENT PROGRAMME (EDP)-Meaning Entrepreneurial development is a process in which persons are injected with motivational drives of achievement and in right to tackle uncertain and risky situations especially in business undertakings. The process of entrepreneurial development focuses on training, education, reorientation and creation of conductive and healthy environment for the growth of enterprises. Therefore, EDP is primarily meant for developing those first generation entrepreneurs. It also covers three variables such as location, target group and enterprise. Qno2. Objectives of the programme 1. To promote the development of small and medium enterprises that would encourage self employment amount potential entrepreneurs. 2. To provide, in rural areas, special programmers designed to stimulate new ventures and encourage expansion of editing activities of small and medium industries. 3. To generate employment and self-employment opportunities. 4. To develop entrepreneurial opportunities for potential entrepreneurs and upgrade management skills for existing entrepreneurs. Other objectives are:a. To enable entrepreneur to take strategic decisions. b. To enable entrepreneur to build an integrated team to fulfill the demands of tomorrow. c. To communicate fast, clearly and effectively. d. To make him accept industrial democracy. e. To strengthen his integrity, honesty and compliance with law. Qno3. Phases involved in EDP The EDP normally passes through three important phases:1. Pre-Training Phase: - This is a preparatory phase for launching the programmers. It includes: Identification of operationally. Promising area. Selection of project leader/course coordinator. Arrangement of infrastructural facilities for the programme. Undertaking potential industrial survey/environmental scanning for identification of good business opportunities. Planning the progammes on various forms such as promotional campaigns; establishing contact with business personalities; getting the application forms printed and making them available; forming selection committee; preparing the budget; contacting the support agencies 2. Training Phase:Objectives Focus Inputs Motivation and reinforcement of Entrepreneur Behavioral Input entrepreneurial traits, confidence building. Enterprise Business opportunity guides Facilitating decision-making process establishment information and project inputs. to set up a new venture. Management inputs, visit/in plant Successful and profitable operation Enterprise training. of enterprise. management firsthand knowledge of factory layout, business sites, etc. 3. Post-Training Phase:Post- training support services are rendered to the participants who have successful completed the entrepreneurship. Objectives: 2011 WASIM RAJA ALL RIGHTS AND CONTENTS RESERVED LOG ON: - www.acit.co.in
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provide a meaningful direction to the trainees in grounding their enterprise. review the progress made by the trainees in implementation of the project. review the post-training approach provide escort services to the trainees by involving financial institutions and promotional.
Qno4. Problems of EDP The operational problems of entrepreneurs development are as follows: Inherent inability No proper strategy Low institutional commitment No local support Non-availability of inputs Poor follow-up No adequate research facilities Unplanned training methodology No clear cut objectives Lack of clarity in approach Lack of creativity and commitment Selection of wrong persons for training. Qno5. Entrepreneurial Development Cycle (EDC) Entrepreneurial development cycle involves three steps such as (a) Stimulatory (b) Sustaining (c) Support (a) Stimulatory Entrepreneurial education Planned publicity for entrepreneurial opportunity Identification of potential entrepreneurs through scientific method Motivational training of new entrepreneurs Help and guidance in selecting products and preparing project required Making available techno-economic information and product profits. Evolving locally suitable new products processes. Availability of local agencies with trained personnel for entrepreneurial counseling and promotion. Creation entrepreneurial forum Recognition of entrepreneurial skills. (b) Support Registration of unit Arranging finance Providing land, shed, power, water etc. Guidance for selecting/obtaining machinery Supply of raw materials Getting licenses. Providing common facilities. Granting tax relief or other subsidy. Offering management consultancy. Help marketing product.
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Providing information. (c) Sustaining Help modernization Help diversification/expansion/substitute production. Additional repayment/interest. Deferring repayment/interest. Diagnostic industrial extension/consultancy source Production units legislation/policy change. Product reservation. Quality testing and improving services. Need-based common facilities centre. Qno6. Relevance of EDP 1. Entrepreneurship development proved that entrepreneur can be made they are not born. 2. Entrepreneurship developments are expected to bring about economic and social change in the entrepreneurs behavior. 3. Entrepreneurship development can convert ordinary persons into risk takers innovators, employers, and above all, the leader a business and industries. 4. Entrepreneurship developments are relevant from the point of view of assisting the trainee entrepreneurs in converting their saving. 5. Entrepreneurship developments are expected to create the sense of social responsibility in the minds of the budding entrepreneurs. Qno7. Achievements of EDP 1. 686 organizations are engage in organizing entrepreneurship development. 2. Around 30% entrepreneurship development trained entrepreneurs put up their enterprise. 3. The scheme offered which include entrepreneurship developments concepts are:Prime Ministers Rojagar Yojana (PMRY); Swarnajyanti Gram Swarojgar Yojna (SGSY); Rural Employment Generation Programme (REGP). Qno8. Course Contents and Curriculum of EDPs The course contents of an EDP are selected in line with the objectives of the EDPs. The training programme is usually to six weeks duration. It consists of the following six inputs:1. General introduction to entrepreneurship:- First of all, the participants are exposed to a general knowledge of entrepreneurship such as factors affecting small-scale industries, the role of entrepreneurs in economic development, entrepreneurial behavior and the facilities available for establishing small-scale enterprises. 2. Motivation training: - The training inputs under this aim at inducing and increasing the need for achievement among the participants. This is, in fact, a crucial input of entrepreneurship training. Efforts are made to inject confidence and positive attitude and behavior among the participants towards business. It ultimately tries to make the participants to start their own business enterprise after the completion of the training programme. In order to further motivate the participants, sometimes successful entrepreneurs are also invited to speak about their experience is setting up and running a business. 3. Management skills:- Running a business, whether large or small requires the managerial skill. Since a small entrepreneur cannot employ management experts to manage his/her business, he/she needs to be imparted basic and essential managerial skills in the functional areas like finance, production and marketing. Knowledge of managerial skills enables an entrepreneur to run his/her enterprise smoothly and successfully. 4. Support system and procedure: - The participants also need to be exposed to the support available from different institutions and agencies for setting up and running small-scale enterprises.
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This is followed by acquainting them with procedure for approaching them, applying and obtaining support from them. 5. Fundamentals of project feasibility study:- Under this input, the participants are provided guidelines on the effective analysis of feasibility or viability of the particular project in view of marketing, organization, technical, financial and social aspects. Knowledge is also given how to prepare the project or feasibility report for certain products. 6. Plant visits: - In order to familiarize the participants with real life situations in small business, plant visits are also arranged. Such trips help the participants know more about an entrepreneurs behavior, personality, thoughts and aspirations. These influence him/her to behave accordingly to run his/her enterprise smoothly and successfully. Therefore, the ultimate objective of entrepreneurship training programme is to make the trainees prepared to start their own enterprise after the completion of the training programme. This is the measure of success levels of the EDPs. Qno9. How to evaluate the success of an EDP 1. Programme objectives: - Evaluation of an EDP may begin with an assessment of the central objectives of the programme. The agency conducting the programme must be clear about the purpose underlying entrepreneurial development. The objective may be to increase production, to generate employment, to uplift certain people, etc. 2. Selection strategy and procedures: - It is impossible to train each and everyone to be an entrepreneur. Only those candidates are selected for training that is likely to be successful in setting up and successfully running their own enterprise. The success of an EPP programme depends largely on proper selection of trainees. 3. Training programme: - Another area for evaluation is the contribution of the training programme. This covers the contribution of the curriculum and its design, the context of the programme, the faculty, the sharing of practical experiences and even the follow-up. 4. Organizational policies and structures: - Entrepreneurial development programmes are generally institutionalized. A local, regional, national or international agency often takes the initiative in starting, funding and executing the programme. These are promotional agencies. Without an institutional support entrepreneurial development programmes are not likely to be successful. Therefore, the assessment of such programmes should begin with the evaluation of the effectiveness of the organizations or agencies concerned with the sponsoring, funding and execution of the programme. Such assessment may cover the evaluation of the agencies resources and development needs. Such needs may relate to financial resources, faculty requirements, viable structures to attract entrepreneurs and to provide them with continuous support, physical facilities, such as a workshop, a study cell, etc. ENTREPRENEURAIL COMPETENCIES/ENTREPRENEURIAL TRAITS Qno1. Meaning of Entrepreneurial competency or trait In simple terms, a competence is an underlying characteristic of a person which leads to his/her effective or superior performance in a job. A job competence is a good combination of ones underlying characteristics such as ones knowledge, skill, motive, etc. which one uses to perform a given job well. It is important to mention that the existence of these underlying characteristics may or may not be known to the person concern. This implies that the underlying characteristics may be unconscious aspects of the person. The underlying characteristics possessed by an entrepreneur which result in superior performance are called the entrepreneurial competencies or traits. Qno2. Major entrepreneurial competencies Entrepreneurial Development Institute of India (EDI), Ahmadabad conducted a research study to identify what makes an entrepreneur successful. The study was conducted under the guidance of Professor David C. McClelland, a well known behavioral scientist in three countries-India, Malawi and Equador. The outcome of the study has been identification of a set of entrepreneurial competencies
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or characteristics that result in superior performance. The major finding of the study was that the possession of competencies is necessary for superior performance. This was cross culturally valid. Following is a list of major competencies identified by the study that lead to superior performance of the entrepreneurs:1. Initiative: - It is entrepreneur who initiates a business activity. 2. Looking for opportunities: - He looks for an opportunity and takes appropriate actions as and when it arises. 3. Persistence: - He follows the Japanese Proverb, Fall seven times; stand up eight. He makes repeated efforts to overcome obstacles that get in the way of reaching goals. 4. Information: - Takes individual research and consults experts to get information to help reach the goal. 5. Quality conscious: - He has always strong urge to excel to beat the existing standard. 6. Committed to work: - Does every sacrifice to get the task completed. 7. Efficiency seeker: - Makes always tenacious efforts to get the task completed within minimum costs and time. 8. Proper planning: - Formulates realistic and proper plans and then executes rigorously to accomplish the task. 9. Problem solver: - Always tries to find out ways and means to tide over the difficult times. 10. Self-confidence:- A strong believer in his strengths and abilities. 11. Assertive: - Good in asserting his issues with others for the cause of his enterprise. 12. Persuasive: - Able to successfully others to do what he actually wants from them. 13. Efficient Monitor: - Personally supervises the work so that it is done as per the standards laid down. 14. Employees well wisher: - Has great concern and also takes necessary measures to improve the welfare of the employees working in his enterprise. Treats employees as a factor of production having emotions and feelings. 15. Effective strategist: - Introduces the most effective strategies to effect employees to achieve the enterprise goal whatsoever it may be.
Or Individual Research Studies

Several individual scholars have also undertaken research studies to identify the entrepreneurial competencies or the quality of a successful entrepreneur. The findings of some of the popular studies are given below:In his study of entrepreneurial development of Madras city of India, James J. Berne, listed the following competencies: He is an enterprising person. He is always growth oriented. He welcomes the introduction of advanced and improved technology. He looks for any changes like watchdog. In the opinion of McCrery, a successful entrepreneur possesses the following qualities: He invests his incomes in his enterprise. He is always quality. He is enough versatile as well as resources at his command. He makes every possible effort to take advantage from any opportunity as and when it arises. According to B.C. Tandon, a successful entrepreneur is characterized by the following four qualities: He is enough risk-bearer. He is ready to adapt change, if the situations warrant. He has ability to marshal the resources at his command.
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He is a good organizer as well as a good manager .
ENTREPRENEURIAL MOTIVATION Qno1. What is Motivation
The term Motivation has been derived from the word Motive. Motive may be defined as an inner state of our mind that moves or activities or energizes and directs our behavior towards our goals. Motives are expressions of a persons goals or needs. In simple terms, motives or needs are ways of behavior. They give direction to human behavior to achieve goals or fulfill needs. Now, motivation may be defined as the process that motivates a person into action and induces him to continue the course of action for the achievement of goals. It is an ongoing process because human needs/goals are never completely satisfied. According to Dalton E. McFarland, Motivation refers to the way in which urges, drives, desires, striving, and aspirations or needs direct, control or explain the behavior of human being.
Qno2. Motivation Theories
1. Maslows Need Hierarchy Theory Maslows theory is based on the human needs. These needs are classified into a sequential priority from the lower to the higher. According to him, all human needs are classified into the five clusters. These fives need- clusters are as:1. Physiological Needs: - These needs are basic to human life and include food, clothing, shelter, air, water and other necessities of life. They exert tremendous influence on human behavior. Entrepreneur also being a man needs to meet his physiological needs for survival. Hence, he/she is motivated to work in the enterprise to have economic rewards to meet the basic needs. 2. Safety and security needs: - After satisfying the physiological needs, the next needs felt are called safety and security needs. These needs find expression in such desires as economic security and protection from physical dangers. Meeting these needs requires more money and, hence, the entrepreneur is prompted to work more in his/her enterprise. 3. Social needs: - Man is a social animal. These needs, therefore, refer to belongingness. All individuals want to be recognized and accepted by others. Likewise, an entrepreneur is motivated to interact with fellow entrepreneurs, his employees and others. 4. Esteem needs: - These needs refer to self-esteem and self-respect. They include such needs which indicate self-confidence, achievement, competence, knowledge and independence. In case of entrepreneurs, the ownership and self-control over enterprise satisfies their esteem needs by providing them status, respect, reputation and independence. 5. Self-Actualization:- The final step under the need hierarchy model is the need for selfactualization. This refers to self-fulfillment. The term self-actualization was coined by Kurt Goldstein and means to become actualized in what one is potentially good at. An entrepreneur may achieve self-actualization in being a successful entrepreneur. In Maslows theory, needs are arranged in a lowest to the highest hierarchy. The second need does not dominate unless the first is reasonably satisfied, and the third need does not dominate until the first two needs have been reasonably satisfied. This process goes on till the last need. This is because man is never satisfied. If one need is satisfied another need arises. Once a need is satisfied, it ceases to be a motivating factor. For entrepreneurs, it is mainly social esteem and selfactualization needs which motivate them to work more and more for satisfying them.
2. McClellands Acquired Needs Theory
According to David McClelland, a person acquires three types of needs as a result of ones life experience. These three needs are:(a) Need for Affiliation: - These refer to needs to establish and maintain friendly and warm relations with others.
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(b) Need for power: - These mean the ones desire to dominate and influence others by using physical objects and actions. (c) Need for achievement: - This refers to ones desire to accomplish something with own efforts. This implies ones will to excel in his/her efforts. McClelland also suggests that these three needs may simultaneously be acting on an individual. But, in case of an entrepreneur, the high need for achievement is found dominating one. In his view, the people with high need for achievement are characterized by the following: They set moderate, realistic and attainable goals for them. Prefer to situations in which they can find solutions for solving personal responsibility. They need concrete feedback on how well they are doing. They have need for achievement for attaining personal accomplishment. They look for challenging tasks.
Qno3. Nature of Motivation

Motivation refers to an internal feeling of an individual or individuals motives. These emotions, feelings or desires of a person prompt him to work more. Unsatisfied needs of an individual disturb his equilibrium, forcing an individual to resort to a goal directed approach. Motivation activates and channelizes dormant energies of an individual toward productive action. Motivation is linked to satisfaction. Satisfaction is the feeling of contentment a person experiences out of need fulfillment. An individual is motivated in totality and not in parts.
Qno4. Types of Motivation

(a) Positive Motivation: - Positive motivation keeps the workers tempted to put in their best for achieving the desired objectives. These temptations rewards or incentives can be in the shape of extra pay, promotion, recognition etc. Positive motivation will result in willing co-operation of workers or the attainment of organizational goals. (b) Negative Motivation: - Negative motivation creates fear or deterrent amongst workers. Fear forces workers to behave in the way the owner wants them to behave. Workers are coerced to behave in a certain manner, failing which they are threatened with layoffs, demotions, pay cuts etc.
ENTREPRENEURIAL MOBLITY Qno1. Factors influencing/affecting entrepreneurial mobility
Following are some important factors which generally influence the entrepreneurial mobility in a given situation and time:1. Education: - Education enlarges ones thinking and understanding horizons. It enables one to comprehend conditions more easily and clearly and in a better manner. An educated person can also easily adjust with the changed environment, hold better discussion and communicate in a more convincing manner. That an educated entrepreneur tends to be more mobile than an uneducated one is supported by empirical evidences also. 2. Experience: - An entrepreneurs past experience in business and industry also increases his/her propensity to move. The reason is not difficult to seek. An experienced entrepreneur better perceives the available opportunities, better analyses his/her strengths and weaknesses and also better understands the complexities involved in running an enterprise. That the technical experience influences the entrepreneurial mobility is indicated by an increasing number of persons with technical knowledge and experience assuming to the entrepreneurial roles at distant places away from their native ones. 3. Availability of facilities: - A tendency is noticed among the entrepreneurs to move from the areas with no or less facilities to the areas with more and better facilities. Heavy concentration of
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industries in Okhla, Ghaziabad and Faridabad near Delhi represent such examples. The reason lies in the fact that these areas have proximity to various agencies, facilities like transport, communication, power, market, etc. 4. Political conditions: - Evidences are available to cite that the entrepreneurial mobility is influenced by the political factors also. 5. Size of Enterprise:- Larger business houses are found more mobile than smaller ones. Initially the entrepreneurs try to consolidate their business position at a place, scale the commanding heights in the area, attain the dominating position and thereafter try to successfully seize the business opportunities elsewhere.
Qno2. Write a short note on Occupational Mobility
In simple words, the occupational mobility denotes movement or changes in occupation. This may take place in two forms. It may be a movement of a son/daughter from the principal occupation of his/her father or it may be a drift in ones own occupation during his/her occupational career. The first type of movement is called as inter-generation movement and the latter type of change as intra-generation occupational movement. The mobility is called horizontal when it takes place between the occupational classes of the equal rank or vertical when it occurs between classes of unequal rank. Several factors like ones freedom of choice, motivation, efforts of an individual and opportunities available in the society determine ones occupational mobility.
PAPER B OWNERSHIP STRUCTURES Sole Proprietorship

Sole trade organization also called individual proprietorship, sole- proprietorship; single entrepreneurship is the oldest form of organization. A sole trader makes his own investments and bears all the risks. A sole trader is the sole organizer of the business and looks after every activity of the enterprise. He is the finance manager, production manager, marketing manager, accounts manager, etc of his business. He takes all decisions himself. A sole trader may employ servants for his help but decision making and risk taking remains with the owner. So it is one man business or single ownership business. According to James Stephenson, A sole-trader is a person who carries on business exclusively by and for himself. He is not only the owner of the capital of the undertaking, but is usually the organizer and manager and takes all the profits or responsibility for losses. According to Peterson and Plowman, A sole-proprietorship is a business unit whose ownership and management are vested in one person. This person assumes all the risk of loss or failure of the enterprise and receives all profits from its successful operation. Thus, it is clear from the above definitions that the sole trade business is owned by one person, only the owner invests money, all decision making lies with one person, all profits or losses from the business belong only to the owner, all risk and responsibility is borne by one person/
Q. Characteristics of sole-trade business

1. A sole-trade business is owned by one person. There are no business associates or agents of the sole-trader with whom he has to share his profits. 2. A sole-trader and his business are not different entities as is the case in Joint Stock Company. 3. In this form of organization the liability of the owner is unlimited. 4. There is no separation between ownership and control. 5. All the risks of sole-trade business are borne by the owner himself.
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6. There is stability in sole-trade business. 7. There are no legal formalities for setting up a sole-trade business.
Q. Advantages of sole-trade organization
1. Sole-proprietorship is the only form of organization where no legal formalities are required to be performed. 2. In this form of organization one man is responsible for all types of activities. He controls all functions of the business. 3. A sole proprietorship concern is generally run on a small scale basis. 4. A sole-trader can maintain business secrets. Being the sole proprietor, he is not expected to share his trade secrets with anybody else. 5. The sole-proprietor takes keen interest in the working of the business. He tries to put his heart and soul in the business to earn as much profits as he can. 6. All important decisions are taken by one person. He can take prompt decisions. 7. The sole-trader is the owner, manager and controller of the business. He does not appoint specialists for various functions.
Q. Demerits of sole-trade organization

1. The development of sole-trade business is linked to the personal capacity of the person who controls it. 2. A sole trader entirely depends upon the limited resources of his family. There is a limit to which a single person can invest. He tries to raise funds from relatives and friends. This is not a reliable and adequate source. 3. One person may not be expert in each and every function of the business. He will not be able to devote sufficient time for all types of activities. He will have to depend upon paid employees. 4. The liability of a sole trader is unlimited. His private property can also be assigned for meeting business obligations. 5. A sole trader is to take all decisions by himself. So there is a possibility of taking wrong decisions. 6. A sole trader cannot attract trained and qualified persons for reasons of unlimited career opportunities.
PARTNERSHIP ACCOUNTS
Q. Meaning of Partnership and its definitions A partnership is associations of two or more persons carry on, as co-owners, a business and to share
its profits and losses. The persons who own the business are individually called partners and collectively called partnership firm. According to Indian Partnership Act, 1932(Section 4) as the relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. According to the Uniform Partnership Act, USA, defines partnership as associations of two or more persons carry on as co-owners, a business for profits. According to John A shubin, Two or more individuals may form a partnership by making a written or oral agreement that they will jointly assume full responsibility for the conduct of business. Thus, it is clear from the above definitions that the partnership is an agreement between two or more persons to carry on legal business with profit motive, carried on by all or any of them acting for all.
Q. Characteristic features of Partnership

1. 2. 3. 4.
Partnership is an agreement between two or more persons. The business carried on by the partnership firm must be legal. The business carried on by the partnership firm must have profit motive. Every partner of the firm is individually and jointly liable for the dues and debts of the firm.
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5. Every partner is the agent of the firm. Partners are also the mutual agent of each other. 6. The partners cannot transfer their interest .
Q. Partnership Deed
Partnership deed is a document prepare with the mutual consent of all partners, covering all the details of the partnership. Each partner should sign this document to indicate acceptance of the terms. The most important points covered in a partnership deed are the following:1. The date of formation and the duration of the partnership. 2. The names and addresses of the partners. 3. The name of the firm. 4. The nature of business to be carried on by the firm. 5. The authority of each partner and the rights and duties of each. 6. The amount of capital to be contributed by each partner. 7. The accounting period to be used. 8. Methods of keeping books of account. 9. Provision for periodic audit. 10.The plan for sharing of profits and losses. 11.Interest on loan payable to the partners. 12.Salary, commission, interest on capital payable to the partners. 13.Interest on drawings to be charged on withdrawals by the partners. 14.Mode of settlement of dues of deceased or retired partner. 15.Procedures to be followed in case of dissolution of the firm.
Q. Distinction between the Partnership and Single ownership Business Partnership 1. It is established according to Partnership Act, 1932. 2. The minimum number of partners is two and maximum number in case of banking business is ten and in other businesses is twenty. 3. There must be agreement among partners. 4. Profit is shared among partners. 5. Business secrecy cannot be maintained. 6. It has got more capital, because there are more members. Q. Advantages of Partnership
1. This is a suitable type of organization requiring no legal formalities. No formal documents are required to be prepared as is necessary in case of Joint Stock Company. 2. The resources of more than one person are available for the business. 3. The partners may be assigned duties according to their talent. 4. The partners meet frequently and they can take prompt decisions. The firm will not lose any business opportunities because of delay in taking a decision.
Single ownership Business 1. It has no specific legislation. 2. It is owned and carried on by only one person. He may employ other persons on take up help from the members of his family. 3. No agreement is required. 4. The entire profit is enjoyed by the proprietor alone. 5. Business secrecy is maintained. 6. It has limited capital, because the capital is contributed by one person only.
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5. The risk of business is shares by more persons. 6. All partners may take active interest in the working of the firm. All partners are consulted on important decisions.
Q. Disadvantages of partnership
1. The liability of the partners is unlimited. They are not liable for their business investments but their private properties can also be taken for business liabilities. 2. There is a limitation in raising additional resources for expansion purposes. The business resources are limited to the personal funds of the partners. Borrowings capacity for the partners is also limited. 3. The partnership concern suffers from the uncertainty of duration because it can be dissolved at the time of death, lunacy or insolvency of a partner. 4. No partner can transfer his share to a third party without the consent of the other partners. 5. All important decisions are taken by the consent of partners so decision-making process becomes time consuming. There may be a possibility of losing business opportunities because of slow decision-making.
Q. Kinds of partners
1. Active partner- who takes active interest in the day to day activities of the business. 2. Sleeping or dormant partner- one who contributes capital, shares risk but does not take part in day to day activities of the business. 3. Nominal partner- one who lends his name to the business but in reality is not a partner. 4. Partner in profit- such partners share profit only and are associated for their money and goodwill. 5. Partner by estoppels- a person poses himself as a partner but actually he is not. 6. Secret partner- his membership is kept secret but can take part in business. 7. Sub-partner- A partner may associate anybody else in his share in the firm. 8. Minor as a partner- A minor is a person who has not attained the age of majority. He can be admitted to the benefits of an existing partnership with the consent of all partners.
Q. Procedure for registration
1. Filing an application: - An application for registration is filed with the Registrar giving information about name, place of business, names and addresses of partners, etc. 2. Certificate: - If everything is in order then the registrar shall record an entity in the register of firms. Advantages of registration:1. Firm gets a right to the third parties. 2. Creditors can recover their dues from partners of the firm. 3. The partners can approach for settling their disputes. 4. A new partner can fight for their rights in the firm. 5. Outgoing partners cease their liabilities from the date of their exist.
CO-OPERATIVE ORGANIZATION Q. Meaning of Cooperative Organizations
Cooperative organization is also a special type of business organization. The main aim of this type of business organization is not to earn profit. In each type of cooperative organization, members belong to one group having the same aim to solve their economic interest. According to International Labour Organization, Cooperative is an association of persons usually of limited means, who have voluntarily joined together to achieve a common economic end through the formation of a democratically controlled business organization.
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According to M.L.Darling, Cooperation is something more than a system; it is a spirit which appeals to the heart and mind. It is a religion applied to business. It is a gospel of self-efficiency and service. Thus, the cooperative organization is to serve people of ordinary means and liberate them from the clutches of the economically strong people and organization.
Q. Features of Cooperative Organizations

1. All cooperative organizations must be registered with the Registrar, cooperative societies of their state. A cooperative society without registration has no legal existence. 2. A major person, who has attained the age of 18 years can become the member of the cooperative society. 3. The basic idea behind the formation of cooperative society is the mutual assistance of its members. 4. The government has exempted cooperative society from making payment of registration fee; stamp duty, income tax etc. 5. Cooperative organizations are voluntary organizations. No one is compelled to become its member. 6. Cooperative societies are formed with service motive. Earning profit is their subsidiary objective. The society, aims to save people from the exploitations.
Q. Advantages of Cooperative Organizations
1. Procedure for the formation of cooperative societies is very simple, less expensive and also less time consuming. 2. The liability of member is limited to the amount of share capital introduced by the member. 3. A person having common interest may join and leave the society at his own will. Membership is open irrespective of religion, caste and sex. 4. Every member has one vote irrespective of the amount of shares subscribed by him. 5. A cooperative society is separate legal entity distinct from its members. The death, lunacy, disability and insolvency of its members do not affect its existence. OR 1. Consumers control and elimination of middlemen. 2. Getting necessities at a lower rate and earn profit. 3. Consumers stores do not speculate. 4. Management expenses are saved. 5. Less expenses on publicity. 6. Practically no problem of selling their product. 7. Number of social values is provided. Q. Disadvantages of cooperative societies 1. Cooperative societies are managed by the elected representatives of the members. These persons are not competent enough to manage the society efficiently. 2. Cooperative societies are generally established by the weaker section of the society for their mutual help. The resource of these people is meager, so it has limited capital. 3. The society cannot maintain secrecy, because every member may have access to its accounts and its affairs are discussed openly in the meeting of its members. 4. Due to guaranteed market of cooperative product, members become slack and work with less efficiency. 5. Lack of cooperation in the work among members creates more difficulties in its working.
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COMPANY
Meaning of a Company Ans: A company is a voluntary association of persons formed to carry on business in its own name under a common seal with the capital divided into shares. It is recognized by law as an artificial person having perpetual, continuous, uninterrupted existence. In other words, a company is a voluntary and association of certain persons with capital divided into numerous transferable shares formed to carry out a particular purpose in common. It is an artificial person created by law to achieve the object for which it is formed. According to Indian Companies Act, 1956, A company means a company formed and registered under this Act or existing company. According to James Stephenson, A company is an association of many persons who contribute money or moneys worth to common stock and employs it in some trade or business and who share the profits and loss arising there from. According to L.H. Haney, A company is an artificial person created by law having a separate entity with a perpetual succession and a common seal. According to Lord Justice Lindley By a company is meant an association of many persons who contribute money worth to a commons stock and employ it for a common purpose. Thus, it is clear from the above that a company is an abstract person, invisible, intangible and existing only in contemplation of law. It can hold, purchase or sell both movable and immovable property, incur and pay debts open a bank account in its own name and sue and be sued in the same manner as an individual. Law creates it and law only can dissolve it. Its existence is altogether independent of the life of its members. Members may come and go but the company would go on forever. Essentials or Characteristics of a Company
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A Joint Stock Company has the following features: (a) It is distinct legal person existing independent of its members. (b)Liability of the members is limited to the extent of the face value of shares held by them. (c) It has a perpetual succession, i.e., the members of the company may keep on changing from time to time but this does not affect the companys continuity. (d) The shares of a company are freely transferable except in case of Private Limited Company. (e) A company being a legal person is capable of owning, enjoying and disposing of the property in its own name. (f) A company, being a separate body can sue and be sued in its own name. (g) It is a voluntary association of persons usually for profit. (h) A company cannot work beyond its Memorandum and Articles of Association. The scope of a company is determined by Indian Companies Act, Memorandum of Association and Articles of Association of the company. Advantages of the Joint stock Companies The company form of organization provides the following advantages: (a) An important advantage of the company is that it helps in the mobilization of large amount of capital for investment in industrial and commercial undertaking. Its capital is divided into shares of small value so that people with limited means can also buy them. (b) The liability of the shareholders of a company is limited to the face value of the shares. In company every person comes forward with sufficient funds due to limited liability of shareholders. If the funds of a company are insufficient to satisfy the claims of the creditors, no member can be called to pay anything more than what is due from him. (c) The shares of a public company can be transferred at any time. Shareholders can convert their shares into cash in case of need. Such liquidity of investment stimulates investment in industrial and commercial enterprises. (d) Elected representatives of the shareholders take active interest in the management of the company. Highly qualified experts in different areas can be employed in a company. Employment of professional managers helps in improving the efficiency of business transactions. (e) The liability or legal binding to satisfy the claims of creditors is limited to the unpaid value of the shares held by a large number of shareholders. This spreads over the incidence of risk on a large number of investors. Disadvantages of Joint Stock Company Joint stock company form of business organization is not an unmixed blessing. It has got both dark as well as bright sides. The following are the disadvantages of a joint stock company: (a) Formation of a company is a time consuming, difficult and expensive process. Too many legal formalities have to be observed and several legal documents like MOA, AOA, and Prospectus have to be prepared and filled. (b) The affairs of a company become public since several statements and returns have to be filed with the Registrar of Companies. It is not possible for a company to retain the business secrets since it is managed and controlled by many people. As the business
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secrets cannot be retained in a company, it adversely affects the earnings capacity of the business. (c) There are possibilities of conflicts between the various interested groups; for example, equity shareholders, preference shareholders, debenture holders, directors, and financial institutions etc. These conflicts generally lead to inefficiency in the management and decrease in the morality of employees of the company. (d) The day-to-day working of a company is bound by rules and regulations given in Indian Companies Act, 1956. At every step, there are some formalities to be fulfilled and a penalty for infringement of the prescribed legal provisions. A lot of precious time, efforts and financial resources are wasted in complying with the statutory requirements. (e) Day-to-day affairs of a company are in the hands of salaried employees and officials who have no proprietary interest in the company. There is lack of initiative in these people. Board of directors mainly depends on these salaried officials. Thus, the whole decisionmaking process suffers from red-tapism and consequent delay in arriving at a decision. Types of Companies (a) Statutory Companies: All those companies which operate under the special act passed by the State Legislature or Parliament are called statutory companies. Such companies are not required to use the word Limited as part of their name. Such companies are required to get their accounts audited by Comptroller and Auditor General of India and are publicly accountable to the State Legislature/Parliament. Examples of such companies are: Reserve Bank of India, State Bank of India, Unit Trust of India, IFCI, and Life Insurance Corporation of India etc. (b) Chartered Companies: A chartered company is established by the Royal Charter or special sanction granted by the head of the State. It is granted certain exclusive privileges and powers. For example, The British East India Company was created by a Charter of the Queen of England. The Bank of England, the Hudsons Bay Company, and the Dutch East India Company are other examples of Chartered Companies. (c) Registered Companies: A registered company is a company which is organized by getting it registered with the Registrar of Companies under the provisions of Companies Act 1956. Or in other words, all those companies that are registered under the Companies Act, 1956, are called Registered Companies. Tata Iron and Steel Co., Reliance Industries Ltd., Hindustan Steel Ltd., and Maruti Udyog Ltd., are some of the examples of Registered Companies in India. Types of Registered Companies (i) Unlimited Companies: It is a company in which the liability of members is unlimited like that of partners in a partnership firm. If the companys assets are insufficient for satisfying the claims of its creditors the personal property of members can be attached to meet the obligations. Or a company which is registered without the provision that the liability of its members is limited to the extent of the unpaid amount of shares held by him is an unlimited company. Liabilities of members of such a company are unlimited like those of the partners of a partnership firm. (ii) Companies Limited by Guarantee: In this type of company, the liability of every member is limited to the amount which he has undertaken to contribute, if necessary, to the assets of the company at the time of Winding up. This amount is called guarantee and is
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specified in the Memorandum of Association of the company. This type of company is generally formed to promote art, literature, sports, education and other non-business activities. (iii) Companies Limited by Shares: It is a company which is registered with a specific amount of share capital divided into a specified number of shares. The liability of every member is limited to the amount, if any, unpaid on shares held by him. (iv) Government Companies: According to Section 617 of the Companies Act, 1956, a Government company means any company in which not less than 51% of the paid-up capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments and includes a company which is a subsidiary of a Government company. (v) Foreign Companies: A Foreign Company is one that is incorporated outside India but has business operations in India. (vi) Public Company: According to Section 3(1) (IV) of the Act, public company means a company which is not a private company; has a minimum paid-up-capital of Rs. 5 lacks or such higher paid-up capital; and is a private company which is a subsidiary of a company which is not a private company. A public company may be a listed company or an unlisted company. (vii) Private Company: According to Section 3 (1)(iii), a private company means a company which has a minimum paid-up capital of one lakh rupees or such higher paid-up capital as may be prescribed, and by its articles: -Restricts the rights of members to transfer its shares; - Limits the number of its member to 50 excluding persons who are in employment of the company, and persons who, having been formerly in the employment of the company; - Prohibits any invitation to the public to subscribe to any shares in, or debentures of, the company; - Prohibits any invitation or acceptance of deposits from persons other than its member, directors, and relatives. (viii) Holding Company: Under Section 4(4) of the Companies Act, 1956, a company is deemed to be a holding company if other company is its subsidiary company. A company becomes a subsidiary when other company controls 51% or more of its paid-up share capital, has right to appoint directors on its board, or is a subsidiary of another subsidiary company. (ix) Subsidiary Company: According to Section 4(1), a company is deemed to be a subsidiary of another company if and only if: - that other company controls the composition of its board of directors; That other company holds more than half in its nominal value of its equity share capital; or That other company is a subsidiary of any company, which is that others subsidiary. Or A company is said to be the subsidiary of a company when that other company is its holding company. The management and control of a subsidiary company is always in the hands of a holding company. According to Prof. Gerstenberg, Any company owned or controlled by another to the extent that it is a mere instrument to carry out the orders of the owning company, is called a subsidiary company. Q. Difference between Partnership and Company
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(a) Partnership is created and governed by the Indian Partnership Act, 1932. While the company is incorporated and governed by the Indian Companies Act, 1956. (b) In partnership the minimum number is 2 and maximum 20 but in banking business maximum number is 10. While as in case of a company, the minimum number is 2 in case of private company and seven in case of public company. The maximum number is 50 in case of a private company and there is no maximum limit of members in the case of a public company. (c) Liability of the firm and each partner is unlimited jointly and separately. While the liability of a company is limited to its assets. Liability of its members is limited to the extent of unpaid value of shares held by them. (d) Registration of partnership is not compulsory but voluntary. A registered firm enjoys certain privileges. While the incorporation of a company is essential. It has to obtain a Certificate of Incorporation and Certificate of Commencement of business before its functioning. (e) The powers and management of a firm are regulated by the Partnership Deed which can easily be altered by the partners. While Memorandum of Association regulates the objects and the scope of activities whereas Articles of Association prescribes the mode of internal management. It is very difficult to change and make alterations in these documents. (f) In partnership a partner has no right to transfer his share to a third party without the consent of all the partners. While shareholders of a company are free to transfer their shares to any person at any time. (g) A partnership firm is managed and controlled by all the partners. While a company is managed and controlled by Board of Directors who are the elected representatives of the shareholders. (h) A partnership firm is not legally bound for the auditing of its accounts. While as Joint stock company is legally bound to get their accounts duly audited by a qualified Chartered Accountant. (i) Preparation of Annual statements is not compulsory in partnership. While preparation of annual statements and sending its one copy to the Registrar of companies is compulsory in case of a company. Share Capital of a Company Meaning of a Share: A share may be defined as one of the units into which share capital of a company has been divided. In other words, the convenient unit in which the capital of a joint stock company is divided is called share. These shares are free transferable and can be sold and purchased in the share market. A person who holds such shares is known as shareholders or members of the company. According to Section 2(46) of the Companies Act, a share is the share in the capital of a company and includes stock except where a distinction between stock and share is expressed or implied. According to Lord Lindley, The proportion of capital to which each member is entitled is his share. The person holding the share is known as shareholder. He receives dividend from the company as a consideration for investing his money into the company. According to Indian Companies Act, 1956 a company can issue two types of shares:
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(a) Equity Shares Equity shares also known as ordinary shares or common shares, represent the owners capital in a company. The holders of these shares are the real owners of the company. The rate of dividend on these shares depends on profits available and the discretion of directors. Therefore, there is no fixed burden on the company. The shareholders expect high rates of dividend in profitable years. But they also bear the risk associated with uncertainty of earnings of the company. Each equity share carries one vote for the holder. So holders of equity shares may form groups and vote against the existing directors of the company. Characteristics or Features of an Equity Share (a) It is a part of the capital of the company. (b) It can be purchased or sold in a stock exchange. (c) It has no cumulative rights to dividends. (d) It can vote in the election of directors. (e) It can take part in the making of certain important company decisions. (f) It can participate in the profits of the company. (g) It can purchase a proportionate part of future share issues. (h) It has the right to share in assets upon liquidation. (b) Preference Shares Preference shares are those which satisfy the following two conditions: (i) as regards dividends, it must carry a preferential right t a fixed amount, and (ii) as regards capital, in the event of winding up, there must be a preferential right to be repaid for the amount of capital paid up on such shares. Preference shares can be subdivided in different classes: (1) Cumulative Preference shares: A cumulative preference share is one that carries the right to a fixed amount of dividend or dividend at a fixed rate. Such a dividend is payable even out of future profit if current years profits are insufficient for the purpose. This means that dividend on these shares accumulates unless it is paid in full and, therefore; the shares are called cumulative preference shares. (ii) Non-cumulative Preference shares: In case of non-cumulative preference shares, dividend is only payable out of the net profit of each year and the shares do not have the privilege of accumulation of the unpaid dividends. (iii) Redeemable Preference shares: Redeemable preference shares are those, the capital of which may be refunded by the company after a specified time. (iv) Non-Redeemable or Irredeemable Preference shares: Non-redeemable preference shares are those, the capital of which cannot be refunded before winding up. (v) Convertible Preference shares: The holders of these shares may be given a right to convert their holdings into equity shares after a specific period. These are called convertible preference shares. (vi)Non-convertible Preference shares: The shares which cannot be converted into equity shares are known as non-convertible preference shares. (vii) Participating Preference shares: The holders of these shares participate in the surplus profits of the company.
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(viii) Non-Participating Preference shares: The shares on which only a fixed rate of dividend is paid are known as non-participating preference shares. These shares do not carry the additional right of sharing of profits of the company. (ix) Guaranteed Preference shares: These are the shares on which a fixed rate of dividend is guaranteed. This type of assurance is given to shareholders to create confidence among them.
Distinction between Equity share and Preference share Equity Share Preference Share It is the risk capital of a company. There is only one kind of equity share. It has no preferential right to dividend. It has no cumulative right to dividend. It has voting power. It is not redeemable. It cannot be converted into preference shares. Equity shares holders can take part in the making of certain important company decisions. At the time of liquidation, equity shareholders are paid off last. Equity shareholders can purchase a proportionate part of future shares issues i.e., rights issue. It has higher expected rate of dividend than preference shares. It is not the risk capital of a company. There are different kinds of Preference shares. It has preferential rights to dividends. It has cumulative right to dividend. It has no voting power. It is redeemable before winding up or at the time of wound up. It may be converted into equity shares. Preference shareholders have no such right. At the time of liquidation, preference shareholders are paid off before the equity shareholders. Preference shareholders have no such right. It has the right to get dividend at a fixed rate.
Q. Meaning of Debenture The term Debenture is derived from the Latin word debere which means to owe debt. A debenture is a document issued by the company as an evidence of debt. It is the acknowledgment of the companys indebtedness to its holders. In other words, debenture is a certificate issued by the company, stamped with official seal, which contains the details of an interest bearing loan made by the company on long term basis. It is a document which either creates a debt or acknowledges it. According to Palmer, Any instrument under seal of the company, evidencing a deed, the essence of it being admission of indebtedness. According to Evelyn Thomas, It is a document under the companys seal which provides for the payment of a principal sum and interest there on at regular intervals which is usually
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secured by a fixed or floating charge on the companys property or undertaking and which acknowledges a loan to company. Thus, it is clear from the above definitions that a debenture is a document or certificate issued by a company under its seal as an acknowledgement of its debt. It is also an undertaking to repay the specified sum with interest to its holder. Q. Characteristics/ Features of Debenture The main features of debentures are as follows: 1. Debentures represent borrowed funds. 2. Interest on debentures is paid at a fixed rate. 3. Interest is payable every year irrespective of whether there are profits or not. 4. Debentures generally carry no voting rights. 5. Debentures may involve a charge on the assets of the company. 6. If interest and borrowed sum is not paid to debenture holders in time, they can take legal action against the company. 7. Debentures are repayable after a specified period or at the time of winding up of the company. Q. Types of Debentures The following are the types of debentures issued by a company. They can be classified on the basis of:1. Security (a) Secured Debentures: - These debentures are secured by a charge upon some or all assets of the company. (b) Unsecured Debentures: - These debentures are not secured by any charge upon any assets. A company merely promises to pay interest on due dates and to repay the amount due on maturity date. These types of debentures are very risky from the view point of investors. These debentures are also known as naked debentures. 2. Convertibility (a) Convertible Debentures: - These are debentures which will be converted into equity shares after a certain period of time from the date of its issue. These debentures may be fully or partly convertible. In future, these debenture holders get a chance to become the shareholders of the company. (b) Non-Convertible Debentures: - These are debentures which cannot be converted into shares in future. As per the terms of issue, these debentures are repaid. 3. Permanence (a) Redeemable Debentures: - These debentures are repayable as per the terms of issue. (b) Irredeemable Debentures: - These debentures are not repayable during the life time of the company. These are also called perpetual debentures. These are repaid only at the time of liquidation. 4. Negotiability
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(a) Registered Debentures: - These debentures are payable to a registered holder whose name, address and particulars of holding recorded in the Register of Debenture holders. They are not easily transferable. (b) Bearer Debentures: - These debentures are transferable by delivery. These are negotiable instruments payable to the bearer. No kind of record is kept by the company in respect of the holders of such debentures. 5. Priority (a) First Mortgage Debentures: - These debentures are payable first out of the property charged. (b) Second Mortgage Debentures: - These debentures are payable after satisfying the first mortgage debentures. 6. Collateral Debentures: - Collateral debentures are those debentures which may be issued to banks and financial institutions as an additional or subsidiary security in addition to certain principal security. Lending institutions or banks can become debenture holders, if the company does not repay loan and the principal security falls short. Q. Distinction between Debentures and Shares Debentures Shares 1. Debenture represents a loan capital. 1. Share represents own capital. 2. There are different kinds of debentures, such as secured, unsecured, convertible, non-convertible, redeemable, irredeemable, registered, bearer, first mortgage, second mortgage and collateral debenture. 3. Debentures are shown in the company Balance Sheet under Secured Loan. 2. There are only two kinds of shares- Equity share and Preference share.
3. Shares are shown in the company Balance Sheet under Share Capital. 4. Shares cannot be converted into debentures in any circumstances.
4. As per the terms of issue, debentures 5. Dividend on equity shares is paid at a can be converted into shares. variable rate which is vastly affected by the 5. Debenture interest is paid at a pre- profits of the company. determined fixed rate. It is payable, 6. Shares can be forfeited for non-payment of whether there is any profit or not. allotment and call monies. 6. Debentures cannot be forfeited for non-payment of calls money as per the provision of Section 122 of the Companies Act, 1956 Q. Distinction between Debenture holders and Shareholders Debenture holders Shareholders
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Debenture holders are the creditors of the company. Debenture holders have no voting rights and consequently do not pose any threat to the existing control of the company. At maturity, Debenture holders get back their money as per the terms and conditions of redemption. At the time of liquidation, Debenture holders are paid-off before the shareholders.
Shareholders are the owners of the company. Shareholders have voting rights and consequently control the total affairs of the company. Equity shareholders cannot get back their money before the liquidation of the company. At the time of liquidation shareholders are paid at last, after paying Debenture holders, creditors, etc.
Industrial Banks
A. Industrial Finance Corporation of India (IFCI) IFCI was the first industrial financing institution to be set up in India soon after independence. It was set up as a statutory corporation in July, 1948 under the IFCI Act, 1948. It has now been converted into a joint stock company under the Companies Act, 1956. Objectives: The purpose of IFCI is to make medium and long term credits more readily available to industrial concerns in India, particularly in circumstances where normal banking accommodation is inappropriate or recourse to capital methods is impracticable. IFCI provides financial assistance for the setting up of new ventures as well as for the modernization and expansion of existing enterprises. It gives priority to dispersal of industry, development of backward areas, growth of industries in the cooperative sector, etc. It pays special attention to the following types of projects: a. Projects located in backward regions. b. Projects promoted by new entrepreneurs and technocrats. c. Projects based on indigenous technology. d. Projects having potential for exports and import substitution. e. Projects likely to meet growing demand for essential commodities. Functions: The IFCI performs the following functions: 1. Granting loans and advances to or subscribing to debentures of industrial concerns repayable within a period of 25 years. 2. Guaranteeing loans raised by industrial concerns from the capital market, scheduled banks or state cooperative banks, which are repayable within a period of 25 years. 3. Providing guarantees for deferred payments for imports of capital goods manufactured in India. 4. Guaranteeing with the approval of the central government, loans rose from or credit arrangements made by industrial concerns with any bank or financial institution outside India. 5. Underwriting the issue of shares and debentures by industrial concerns which must be disposed of within 7 years.
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6. Subscribing directly to the shares of industrial concerns. 7. Acting as an agent of the central government and the World Bank when loans are sanctioned by then to industrial concerns in India. Industrial Development Bank of India (IDBI) The Industrial Development Bank of India was set up as an apex institution and it started its operations with effect from July 1, 1964. It was set up as a statutory corporation under the Industrial Development Bank of India Act, 1964. The needs of rapid industrialization, long term financial needs of heavy industry beyond the resources of the existing institutions, absence of a central agency to coordinate the activities of other financial institutions and gaps in the financial and promotional services were the main causes behind the establishment of IDBI. Objectives: The objectives of IDBI are to coordinate, regulate and supervise the activities of all financial institutions providing term finance to industry, enlarge the usefulness of these institutions by supplementing their resources and by widening the scope of their assistance, provide direct finance to industrial concerns in both public and private sectors, locate and fill up gaps in the industrial structure of the country, adopt and enforce a system of priorities so as to diversify and speed up the process of industrial growth. The bank has been conceived of as a development agency that will ultimately be concerned with all questions relating to industrial finance in the country. Functions: The main functions of IDBI are as follows: 1. Subscribing to the shares and bonds of financial institutions and guaranteeing their underwriting obligations; 2. Refinancing term loans and export credits extended by other financial institutions; 3. Granting loans and advances directly to industrial concerns; 4. Guaranteeing deferred payments due from and loans raised by industrial concerns; 5. Subscribing to and underwriting shares and debentures of industrial concerns; 6. Accepting, discounting and rediscounting bonafide commercial bills or promissory notes of industrial concerns including bills arising out of sale of indigenous machinery on deferred payment basis; 7. Financing turnkey projects by Indians outside India and providing credit to foreigners for buying capital goods from India; Thus, the bank performs financial, promotional, and coordinating functions. As an apex institution in the field of development banking, IDBI supplements and coordinates the activities of various national and state level financial institutions in the country. Q. Industrial Credit and Investment Corporation of India (ICICI) The Industrial Credit and Investment Corporation of India Ltd. Was set up in 1955 as a public limited company, with support from the Government and the World Bank. The primary of setting up ICICI was to promote industries in the private sector and meeting their foreign exchange requirements. Objectives: - The establishment of ICICI aimed at filling gaps in the institutional facilities for the provision of finance to industrial undertakings in the private sector. It is also to act
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as a channel for providing development finance to industry. Following are the main objectives of the corporation:1. To assist the creation, expansion and modernization of industrial enterprises within the private sector in India. 2. To encourage and promote the participation of private capital, both internal and external in such enterprises. 3. To encourage and promote private ownership of industrial investment and expansion of investment markets. Functions: - In order to achieve various objectives, the corporation performs the following functions:1. To provide loans repayable over a period of 15 years. 2. To provide funds in the form of equity participation. 3. To sponsor and underwrite new issues of shares and securities. 4. To guarantee loans from the private investment sources. 5. To make funds suitable for reinvestment by resolving investments as rapidly as possible. 6. To provide managerial, technical and administrative services to industry. 7. To serve as a merchant banker. Q. Small Industries Development Bank of India (SIDBI) The Small Industries Development Bank of India, a wholly owned subsidiary of IDBI, completed 14 years of operation in March 2007. SIDBI has been set up to provide the same services that IDBI performs to the medium and large scale sector, to the small scale industries sector. All the schemes of IDBI relating to SSI units have been taken over by SIDBI. Q. Unit Trust of India (UTI) Unit Trust of India was floated in 1964 in the public sector to harness the savings from small and medium income groups with an objective to make investment in equity shares and other securities of corporate sector. Or in other words UTI was established on 1 st February, 1964 as a statutory corporation. It started its operations with effect from 1 st July, 1964. It was set up to promote savings and investment in the country. It pools the savings of the public through the sale of units and invests the funds in industrial securities. Objectives: - The main objectives of UTI are:1. To mobilize public savings. 2. To invest the funds so collected in a wide range of securities. 3. To provide the benefits of diversified investment, safety of capital and regular return to small investors. 4. To enable the common man to share the gains of industrialization. 5. To facilitate the growth and diversification of the economy. Functions of UTI:1. Collecting funds through the sale of unit schemes. 2. Investing funds into shares, debentures and other securities. 3. Underwriting issues of shares and debentures. Q. International Sources of Financing 1. Global Depository Receipts (GDRs): 2011 WASIM RAJA ALL RIGHTS AND CONTENTS RESERVED LOG ON: - www.acit.co.in
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GDR is the form of Global Depository Receipt or certificate created by the Overseas Depository Bank outside India denominated in dollar and issued to non-resident investors against the issue of ordinary shares or foreign currency convertible bonds of issuing company. In short it is basically a negotiable instrument denominated in US dollars. It is traded in Europe or the US or both. After getting approval from the Ministry of Finance and completing other formalities s company issues rupee denominated shares in the name of depository which delivers these shares to its local custodian bank, the holder on records, a depository. The depository then issues dollar one GDR is equal to one or more shares. It is traded like other dollar denominated security in the foreign markets. 2. American Depository Receipt (ADRs):ADRs are negotiable receipts issued to investors by an authorized depository, normally a US Bank or depository in lieu of shares of the foreign company, which are actually held by the depository. ADRs can be listed and traded in US based stock exchange and help the Indian company to be known in the highly liquid US stock exchanges. ADRs also help in the US based and other foreign investors to have the twin benefits of having shareholding in a high grown Indian company and the convenience of trading in a highly liquid and well known stock market. ADRs are one way for you to have exposure to foreign non-US-stocks. The original stock certificate of the foreign security is registered in the name of an American Trust company or the US Bank and held in safekeeping by them. The trust company or bank buys shares on a foreign exchange and then issue receipts against this stock. These receipts are known as ADRs. 3. Foreign Direct Investment (FDI):In order to make sufficient funds available foreign direct investment was open to foreign institutions. These institutions were allowed to participate in both the portfolio investment and direct investment. Foreign institutions are allowed to participate in Joint venture but their participation was restricted to 40%. Since the liberalization, privatization and globalization process- procedures have been simplified and foreign institutions are invited to make direct investment in the country. Foreign direct investment refers to the direct route to foreign investment for the development of infrastructural facilities of the economy. Foreign direct investment is freely allowed in all sectors including the service sectors accept where the existing and notified sectoral policy does not permit FDI beyond a ceiling. PROJECT APPRAISAL AND FINALISATION Q1. What is Project? A project is a specific plan or design presented for consideration. UNIDO defines a proposal for an investment to create and or develop certain facilities in order to increase the production of goods and services. A project can be long-term, short-term, limited or comprehensive, single sector concentrated or multi sector concentrated. Project can be defined thus as:1. A scientifically evolved work plan. 2. Devised to achieve a specific objective. 3. Within specified time limit. 4. Consuming planned resources.
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Q2. Meaning of a Project Appraisal Project appraisal is a generic term that refers to the process of assessing, in a structured way, the case for proceeding with a project or proposal. It often involves comparing various options, using different techniques. Project appraisal is the analysis of costs and benefits of a proposed project with a goal of assuring a rational allocation of limited financial resources amongst alternate investment opportunities with the objective of achieving specific goals. Project appraisal enables the lending financial institution to make an independent and objective assessment of various aspects of and investment proposition to arrive at the financing decision. Project appraisal is the process of transmitting, information accumulated through feasibility studies into a comprehensive form in order to enable the decision maker undertake a comprehensive appraisal of various projects and embark on a specific project or projects by allocating limited resources. Since risk is involved in all activities associated with the project, project appraisal aims at improving the quality projects and their long term profitability, aims at minimizing the risk of lending by rectifying their weaknesses and improving their effectiveness by incorporating into them safeguards missed by the promoters because of their lack of knowledge or information. Q3. Scope of Project Appraisal The appraisal of a project is undertaken by the financial institutions with the twin objectives of determining the market potential of a project and selecting an optimal strategy. The methods of analysis vary from project to project. Nevertheless certain common aspects of study from the angle of technology and engineering are with a mention: Choice of technical process and or appropriate technology. Technical collaboration arrangements, if any. Size and scale of operations. Locational aspects of the project and availability of infrastructural facilities. Selection of plant, machinery and equipment together with background, competence and capability of machinery equipment suppliers. Plant layout and factory building. Technical engineering services. Project design and network analysis for the assessment of project implementation schedule. Project cost and its comparison with other similar projects, based on technology, equipment, product mix and time spread. Determination of project cost estimates profitability projections, etc. Sensitivity analysis. Q4. Steps followed in Project Appraisal Project appraisal a scientific tool. It follows a specific pattern. First and foremost, an analysis of a regions economy provides a general framework within which the assessment of any project is made. This analysis indicates whether the project is in a potential environment, which enjoys priority for economic development of the region/state concerned. This exercise itself usually involves the investigation of six different aspects, economic, technical, organizational, managerial, operational and financial. The relative
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importance of these different aspects can vary considerably according to circumstances and type of project. The main stages of the system of project appraisal are:Step1 Economic- Indicates priority use. Step2 Technical- involves scale of the project and technical process adopted. Step3 Organizational- suitability is examined. Step4 Managerial- adequacy and competence are critically scrutinized. Step5 Operational- capability of the project. Step6 Financial- determines the financial viability for sound implementation and efficient operation. Q5. Methods of Project Appraisal Appraisal of a proposed project includes the following analysis: Economic Analysis Financial Analysis Market Analysis Technical Analysis Managerial Competence 1. Economic Analysis Appraisal of economic aspects is most important because even the bank will not finance a project unless it is satisfied that the project reflects a high priority use of regions resources. The economic appraisal should cover as to whether the project fits into national priorities, contributes to the development of desired sector of economy and other benefits justify the allocation of scarce resources of the economy. This appraisal is called Social Cost Benefit Analysis (SCBA). 2. Technical Analysis Technical appraisal covers technical feasibility of the project which includes the study of adequacy of the proposed plant and equipment to produce the products within the prescribed norms. It is to be ascertained as to whether the technical knowhow is available with the entrepreneur or it is to be procured from elsewhere. Appraisal of technical feasibility of the project covers the following: Availability of infrastructural facilities like water, power, transport, communication, and repair shops etc. Availability of raw material as per required quantity and quality. Availability of right type of work force in requisite member. Manufacturing process or technology selected. Technical collaboration arrangements made if any and their details. Size of the project or scale of operation. Rate of obsolescence. In nutshell technical appraisal refers to the review of production mix, production capacities, process of manufacture, location of plant, sources of raw materials, building, plant and equipment, manpower requirement, technical collaboration, if any, infrastructural facilities like roads, bridges, railways, airways, water, power and other facilities, availability of research and development facilities for updating and up rating of project. 3. Financial Appraisal
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Financial appraisal is one of the most important pre-requisite for the setting up of an enterprise. Since all the business activities revolve around finance, the importance of financial aspect cannot be underestimated. Successful implementation of a project proposal depends upon proper financial planning an appraisal. 4. Operational Market Appraisal It helps in analyzing the capability of the project. The market research provides the basic input for deciding the installed capacity requirement for the project. The capability of the project must be sufficient to meet the demand for the entire spectra of plant product mix. To bring maximum benefit to the promoters, market analysis should cover the following major aspects: Analyzing the market opportunity and specifying marketing objectives. Planning the process of marketing the product. Organizing the marketing process. Controlling the execution of the marketing plan which facilitates taking corrective action whenever actual results deviate from expectations or estimates. 4. Environmental Appraisal Environment is demand to include everything external to man. It includes region, surroundings or circumstances in which anything exists. Environmental management refers to environmental planning, protection, monitoring, assessment, research, education, conservation of resources etc. production oriented projects refer to those projects which produce physical goods like cement paper steel, chemicals fertilizers etc. These projects convert the natural resources into saleable and exchangeable products. Thus they cause a large number of physical changes and disruptions or, environment. It has now become mandatory to obtain environment clearance for all major projects on the basis of their environment impact statement. After completion of comprehensive appraisal of a project on the basis of technical, financial, economic, managerial, operational and environmental aspects. The financial institutions or lending institutes may advise the entrepreneur to submit detailed project proposal. The financial institutions task does not end with proper appraisal and sanction of financial assistance. For proper implementation of a project, the financial institutions should ensure prompt disbursement, close supervision and follow up action. Project appraisal thus paves for getting the clearance for project implementation. PROJECT IDENTIFICATION AND PROJECT SELECTION (PIS) Q1. Meaning of a Project A project is an idea or plan that is intended to be carried out. The dictionary meaning of a project is that it is a scheme, design, a proposal of something intended or devised to be achieved. According to Newman, a project typically has a distinct mission that it is designed to achieve and a clear termination point, the achievement of the mission. According to Gillinger, as the whole complex of activities involved in using resources to gain benefits. According to Encyclopedia of Management, a project is an organized unit dedicated to the attainment of a goal-the successful completion of a development project on time, within budget, in conformance with pre-determined programme specifications..
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Now, a project can be defined as a scientifically evolved work plan devised to achieve a specific objective within a specified period of time. Q2. Project Classification 1. Quantifiable and Non-quantifiable projects Projects for which a plausible quantitative assessment of benefits can be made are called quantifiable projects. Projects concerned with industrial development, power generation, mineral development fall in this category. On the contrary, non-quantifiable projects are those in which a plausible quantitative assessment cannot be made. Projects involving health education and defence are the examples of non-quantifiable projects. 2. Sectoral Projects According to this classification, a project may fall in any one of the following sectors: Agriculture and Allied sector Irrigation and power sector Industry and mining sector Transport and communication sector Social services sector Miscellaneous sector 3. Techno-Economic Projects Projects classification based on techno-economic characteristics fall in this category. This type of classification includes factors intensity-oriented classification, causation-oriented classification and magnitude-oriented classification. These are as follows:(a) Factor intensity-oriented classification Based on factor intensity classification, projects may be classified as capital intensive or labour intensive. If large investment is made in plant and machinery, the projects will be termed as capital intensive. On the contrary, projects involving large number of human resources will be termed as labour intensive. (b) Causation-oriented classification Where causation is used as a basis of classification, projects may be classified as demand based or raw material based projects. The very existence of demand for certain goods or services makes the project demand-based and the availability of certain raw materials, skills or other input makes the project raw-material based. (c) Magnitude-oriented classification In case of magnitude-oriented classification, based on the size of investment involved in the projects, the projects are classified into large scale, medium-scale or small-scale projects. Q3. Meaning of a Project Identification (a) Idea Generation: - Project selection process starts with the generation of a product idea. In order to select the most promising project, the entrepreneur needs to generate a few ideas about the possible projects he/she can undertake. The project ideas can be discovered from various- internal and external sources. These may include: Knowledge of potential customer needs. Watching emerging trends in demands for certain products. Scope for producing substitute product. Going through certain professional magazines catering to specific interests like electronics, computers etc.
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Success stories of known entrepreneurs or friends or relatives. Making visits to trade fairs and exhibitions displaying new products and services. Meeting with the government agencies. Ideas given by the knowledgeable persons. Knowledge about the government policy, concessions and incentives, list of items reserved for exclusive manufacture in small-scale sector, and A new product introduced by the competitor. All of these sources putting together may give a few ideas about the possible projects to be examined as the final project. This is also described as opportunity scanning and identification. Q4. Importance of Project Identification 1. Identified projects become the catalytic agents of economic development. 2. They initiate the process of overall development in terms of employment and income generation. 3. They have long-term beneficial consequences. 4. Projects provide guidelines for future pattern of activities and services to be undertaken by an enterprise. 5. Projects identification result in development of basic infrastructure and environment. 6. Project commitments are normally not revised. 7. Project accelerates the pace of socio-cultural development. Q5. Process of Project Identification The process of project identification and selection is not easy task. It involves the assessment and evaluation of a number of characteristics of project which are as under:1. Inputs: - It is necessary to make use of the SWOT analysis in respect of the resources available at the disposal of the entrepreneur while identifying a suitable project. The various input resources refer to raw-materials, energy, manpower, finance and organizational structure. The nature and magnitude of each of these inputs must be determined in order to make the input characteristics explicit. 2. Outputs: - The study of output characteristics helps in determining as to what the project will generate in the form of goods and services, employment, revenue etc. The quantity and quality of all these outputs should be clearly analyzed before the proposed project is undertaken. 3. Social costs and Benefits: - It is also necessary to study the impact of the project on the society. The proposed study of also necessary to study the impact of the project on the society. The proposed study of project work inevitably affects the current equilibriums of demand and supply in the economy. It is essential to evaluate carefully the sacrifice which the society requires to make and the benefits that will accrue to the society if the proposed projects are undertaken. 4. Location: - It is necessary to take into account the tentative choice of the location where the project proposed is to be set up. It has been observed that a small-scale entrepreneur normally pre-determines the location and therefore, it is necessary to identify the project suitable for that location. In the case of medium and large scale projects, the location is
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normally decided on the basis of project requirements. The selection of the project should be made on the basis of promoters background and inclination. 5. Counseling services:- For selecting a suitable project, different sources such as government agencies, i.e., Entrepreneurship Development Centers(EDC), Small Industries Service Institute (SISI), Technical Consultancy Organization (TCO), Credit and Financial Institutions, non-governmental agencies.
PROCESS OF PROJECT IDENTIFICATION
(a) INPUT
Q6. Constraints in Project Identification The venture ideas of the entrepreneurs have to be screened and evaluated in a preliminary fashion on the basis of internal and external constraints before the project is put to additional test of pre-feasibility. The internal and external constraints which are to be examined for the implementation of the proposed project work are as follows:Internal Constraints (a) More reliance on outside consultants: - In implementing their projects, the entrepreneurs depend more upon the outside consultants for preparing feasibility reports. Since they do not have in built project service in preparing the feasibility reports, undue delay may take place in the formulation and implementation of the proposed projects. (b) Limited budget and time schedule: - For the early implementation of projects within the budgeted costs and time schedule, the entire time schedule, all the enterprises may not develop independent project management systems, organization structure, network analysis and other elements. (c) Formulation of unrealistic objectives: - Normally, project management team is not much involved with the determination of project objectives. Hence, the project goals and objectives lay down the main purpose for which an organization exists. The unrealistic objectives formulated by top management, thus, becomes an internal constraint for the project team to achieve those objectives. (d) Not-availability of resources: - The availability of necessary internal project resources is classified as physical and non-physical resources. The physical resources include finances, personnel, inventories and infrastructural facilities. The non-physical resources are patents, unique experience and skills. These physical and non-physical resources are the important constraints for the entrepreneurs to make available at a time when the process of project implementation is in progress. External Constraints (a) Non-conformity to the socio-economic objectives: - The external environmental factors like nature, size, location and the extent of projects shall limit the entrepreneurs when the project does not conform to the socio-economic objectives of society. (b) Government policies and regulations: - Government policies and regulations have become major hurdles for to the entrepreneurs while implementing the projects. Abnormal delay is taking place in getting approval for license, foreign collaboration, and control of capital issues clearance, environmental clearance, foreign exchange permit, capital goods approval and import goods clearance. On account of these reasons, the projects
(b) OUTPUT (c) SOCIAL COSTS AND BENEFITS (d) LOCATION (e) COUNSELLING SERVICES
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implementation is delayed; as a result the project costs are not matching with the estimated costs. (c) Cumbersome procedure of financers: - Financial institutions and banks are the important external financial source for the entrepreneurs for financing their projects. These financial institutions and banks cumbersome procedures and documentation system making inordinate delay in getting financial sanctions for the projects. Hence, the entrepreneurs are not able to get the required funds on time for the implementation of the project. Q7. Project Life Cycle Like human beings, projects also have a like cycle. The project life cycle consists of five phases which are as follows:(a) Conception Phase: - This is the first phase in the life of a project. It is primarily concerned with the germination of project idea. The idea may first come to the mind when one is seriously trying to overcome certain problems. The problems may be non-utilization of available funds, plant capacity and man-power. (b) Definition Phase: - During this phase of project life, project idea is developed into an investment proposition. This phase produces a document describing the project with sufficient details covering all aspects necessary for the customer and or financial institutions to make up their minds on the project idea. During this phase a number of considerations are given for the availability of raw-material, enumeration of plant capacity, description of the location, selection of optimum technology layout, plant and machinery, optimum civil works, selection and description of utilities such as fuel, power, water etc., selection of labour and staff and their training, the evaluation of financial viability. Thus, during this phase of project, the project objectives are formulated, demand is forecasted, optimal strategy is selected, input characteristics are evaluated, financial profile is projected and pre-investment appraisals are prepared. (c) Planning and Organizing Phase: - During this phase of project life cycle, the entrepreneurs prepare project execution plan and the organizations by the large deal with the areas such as project infrastructure and enabling services, system design and basic engineering package, organization and manpower, schedules and budgets, licensing and government clearances, finance arrangements, formulation of systems and procedures, identifying the project manager, general conditions for the purchase and contracts, site preparation and investigations, construction resource and materials. Thus, this phase consists mainly the development of infrastructure for the project. (d) Implementation Phase: - This is a period of hectic activity for the project. During implementation phase of project life cycle, the entrepreneurs prepare specifications for equipment and machinery, ordering of equipment, lining up construction contractors, issue of construction drawings, civil constructions, equipment and machinery erection, plant electrical, piping, instrumentation, testing, checking, trail run and commissioning of the plant take place. This phase involves the completion of 80-85% of the total project work. Thus, during this phase, the project gets a clear shape and comes into existence. (e) Project clean-up Phase: - This is a transition phase wherein the various agencies concerned with formulation and implementation of the projects physically hands over them for production. In this stage, project accounts are closed, materials reconciliations are carried out, and outstanding payments are made any dues outstanding would also
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be collected. Thus, during this phase, the projects start producing goods and services for which they are established. SMALL ENTERPRISES Q1. Definition of Small Scale Enterprises or Small scale units (a) Small scale industries during the Indian Pre-independence Era Industries as, Industries carried on in homes of workers which we have designated as cottage industries. In these, operations are small and there is but little organization so that they are, as a rule, capable of supplying only local needs. The definition for small scale industries which prevailed before the 2 nd World war was: A small scale industry is a unit having capital invested up to Rs. 30,000 and those concerns having capital in excess of that amount were classified as large scale units. (b) Small scale industries defined during the Indian post independence Era According to fiscal commission-1950 A unit employing less than 50 persons if using power and less than 100 persons without the use of power and with a capital investment not exceeding Rs. 5 lakhs. In the year 1996, the ministry of commerce and undertakings defines SSI, as an undertaking having a capital investment in plant and machinery of not more than 7.5 lakhs and Rs. 10 lakhs in case of ancillary units. In the year 1980, the Government of India defined SSI as, An undertaking having an investment in plant and machinery of not more than Rs. 20 lakhs and Rs. 25 lakhs in case of ancillary units. According to Government of India, 2000 SSIs, an undertaking having an investment in plant and machinery of not more than Rs. 1 crore. Q.Short notes:(a) Tiny Industries: - Very small industries with an investment of less than Rs. 25 lakhs are included in this category. These one owned and run generally by single owners or sole proprietors. (b) Ancillary Units: - These having an investment in plant and machinery up to Rs. 1 crore. (c) Cottage Industries: - Proprietors and also called household industries owned any who engage then own family members in pursuing this cottage business as either full time or part time. Business in such ventures, the capital investments is small and the components used are simple the function as performed making the use of local resources and local skills. Q. Characteristics of Small scale Industries The small scale industries possess the following features:1. Personal character: - A small scale unit is generally owned and controlled by one person or a family. These operate inform of a sole proprietorship ventures or in few cases as a partnership venture. 2. Labour Intensive: - Small scale industries are largely labour intensive with comparatively smaller capital investment. These employ simple and small tools and technology. 3. Gestation Period: - These units start yielding returns an investment in a short period. 4. United scope of operation: - The scope or area of operation of small scale units is generally localized catering to the local or regional demand. The operation of these enterprises is confined to a limited area. However, the products of these units many be exported to several countries.
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5. Simple Technology: - Small scale industries employ simple labour intensive technology for the operation. Therefore, these are suitable for economics with scarce capital and abundant labour supply. 6. Use of local resources: - Small scale units use local or indigenous resources and therefore have the flexibility of being located in any area where the basic such as land, labour, rawmaterial etc. are available. Q. Rationale/objectives of small scale industries The industrial development of many countries especially Indias has been the result of the development of small scale industrial units. The industrial policy resolution 1956 summed up the case for small scale and cottage industries as follows:They provide immediate they off a method for ensuring a more equitable distribution of the national income and they facilitate an effective mobilization of resources of capital and skill which might otherwise remain unutilized. Some of the problems that unplanned urbanization tends to create will be avoided by the establishment of small centers of industrial production all over the country. The establishment of small scale industries can be justified on the basis of certain objective they help in attaining for any nation. Q. Objectives of small scale industries To create more employment opportunities with less investment. To remove economic backwardness. To reduce regional imbalance. To mobilize and ensure optimum utilization of unexploited resources of the country. To improve standard of living of people. To ensure equitable distribution of income and wealth. To solve unemployment problem. To attain self reliance To adopt latest technology aimed at producing better quality products at lower costs. Q. Importance of small scale industries The importances of small scale industries for an economy like India are:(a) Employment generation: - Small scale industries use labour intensive techniques and therefore provide employment on a large scale. For every Rs. 1 lakh of fixed investment small scale sector provides employment to 269 persons. (b) Distribution of economic power:- The equality argument implies that the income generated from large number of small enterprises is distributed more widely in the community as compared to income generated in few large enterprises. The income benefit to small enterprises is derived by a large population, while large enterprises encounter more concentration of economic power. In this ways small enterprises bring about greater equality of income distribution. (c) Quicker returns on capital invested: - Small scale required less capital per unit of output and provide quick returns on investment due to shorter gestation period. (d) Facilitates entrepreneurial development: - small scale sector helps in entrepreneurial development. The units provide self employment to educated unemployed and reduce their
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over-dependence the government. It also generates feeling of self reliance amongst the people. This sector generators more employment opportunities with relatively lesser capital investment. Small scale industries can mobilize entrepreneurial skills more effectively and put these into productive use. (e) Export potentiality: - small scales have the advantage of low overheads and the capacity to respond quickly to changing conditions. There is growing international preference for high quality personalized it is often skill intensive as generally produced by small scale industries. (f) Effective use of local resources: - small scale enterprises employ local resources like raw material, saving entrepreneurial skill more effectively. In the absence of these enterprises these enterprises these resources are likely to remain unutilized. Thus on one hand small scale sector ensures better use of the local resources and on the other generates employment opportunities and income for a local population. (g) Social advantage:- Small sector contributes towards the development of a socialistic pattern of society by reducing concentration of income and wealth. They provide an honorable and independent living to people with limited resources. They facilitate wide participation of public in the process of development and there by serve the cause of democracy and self-government. Q. Problems of small scale industries A major problem that the small scale industries have to contend within the procurement of raw material. The problem of raw material has assumed the shape of Non-availability of raw material A poor quality of raw materials A high cost The small scale industries because of their small size and relative backwardness have to face a lot many problems of varying nature. Some of them are as follows:1. Problem of finance An important problem faced by small scale industries in the country is that of finance. The problem of finance in small sector is mainly due to reasons. Firstly, it is partly due to scarcity of capital in the country as a whole. Secondly, it is partly due to weak credit worthiness of small units in the assistance from the commercial banks and financial institutions. 2. Problem of marketing One of the main problems faced by small scale units is in the field of marketing. These small units often do not possess any marketing network. They have often to sell their output in the local area at low prices. These units cannot spend much on advertising and publicity. 3. Problem of underutilization of capacity On an average 40 to 50% of capacity is not utilized in small scale units. The very integral to the problem of under utilization of capacity is power problem faced by small scale industries. The power supply is not always available; it is rationed out, limited to a few hours in a day. 4. Outdated technology
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Most of the small scale units depend upon old techniques and equipment. Due to limited capacity and capital, the industry is very difficult to modernize their plant and machinery. In the absence of modern technology the quality of products and productivity tend to be low. Cost of production per unit remains high. 5. Poor project planning In the absence of education and experience small scale businessman often depend upon consultants. They do not fully understand project details. Due to poor planning of projects, cost and time over runs arise. 6. Competition Small units face severe competition from large firms. Multinational corporations and cheap imports from china and Korea. 7. Sickness There is widespread sickness in small scale sector. More than ten percent of the small scale units are sick due to one reason or the other. Q. Types of small scale industries Small scale industries can be classified into five main types as follows:1. Manufacturing industries, i.e., industries producing complete articles for direct consumption and also processing industries. 2. Feeder industries specializing in certain types of products and services, e.g., casting, electro-plating, welding etc. 3. Serving industries covering light, repair, and shops necessary to maintain mechanical equipments. 4. Ancillary to large industries, producing parts and components and rendering services; and 5. Mining or quarrying Q. Distinction between small scale units and large scale units Large scale units 1. Large scale units require more finances. 2. Large number of workers is employed on wages. 3. Large scale units cater to a wider market within and outside the country. 4. The volume of output of small scale industries is much smaller. 5. Large scale units have to comply with legal formalities like obtaining of licenses, etc. Small scale units 1. Small scale units require less finance. 2. Limited number of workers is employed. 3. Small scale units have limited markets. 4. Larger houses produce on a large scale. 5. Small scale industries have relatively simple rules and procedure for their operations.
Q. Role of small enterprises in economic development The role of small enterprises in economic development of a country will much better be facilitated if we examine it with relevant parameters. Of course, increase in the number, production, employment and exports of small scale enterprises over a period of time could
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be common parameters to adjudge the role played by small enterprises in the country. The small scale industries have registered phenomenal growth in their number, production, employment and exports over the years. Their number has phenomenally grown from 16,000 in 1950 to 31.21 lakhs in 1998-99. While production has registered an increase of more than twenty-times, employment grew by about three-times over the period 1947-99. Growth in exports has been particularly commendable from mere Rs. 393 crores in 1973-74 to a mounting high figure of Rs. 57,488 crores in 1998-99. One way, the most plausible way of viewing at the role of small enterprises in economic developments is to see its relative position in terms of countrys total production, employment and exports. It is encouraging to mention that the small scale enterprises account for 35% of the gross value of the output in the manufacturing sector, about 80% of the total industrial employment and about 40% of the total exports of the country.
Q. Define financial planning Financial planning refers to process of determining the objectives, policies, procedures, programmes and budgets to deal with the financial activities of an enterprise. Financial planning refers to estimating the amount of capital and determining its composition. It is concerned with the preparation of plants for the procurement, investment and administration of funds. Financial planning refers to estimating the amount of capital and determining its composition. It is concerned with the preparation of plans for the procurement, investment and administration of funds Q. Role and importance of financial planning 1. Adequate funds are ensured for business operations. 2. Financial planning tends to balance the inflow and outflow of funds. This ensures adequate liquidity throughout the year. 3. It reduces the elements of uncertainty from financial and investment decisions and ensures stability and profitability of business. 4. It helps to lower the cost of operations and converse the scarce capital resources. 5. It seeks to minimize the effect of adverse market conditions on the profitability of the firm. Q. What are the objectives of financial planning? Financial planning is the process of determining the objectives, policies and procedures, programmes and budgets to deal with the financial activities of an enterprise. Proper financial planning is necessary to enable a business enterprise to continue its operations efficiently. It serves the following purposes or objectives:1. Determination of the amount of capital for various needs of the business. Both present and future requirements are to be considered.
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2. Determination of capital structure. It involves decision regarding the issue of shares and debentures. 3. Formulation of financial policies relating to borrowings and lending, cash control and other financial activities. 4. Procurement of funds at the lowest cost and their best utilization to maximize return on investment. Q. Explain the term Capitalization Capitalization is the sum total of all long term securities issued by a company and the surpluses not meant for distribution. It includes shares, reserves, debentures and long term loans. In other words, it is the sum total of all long term funds available to a company and the surplus earnings not meant for distribution. Q. Meaning of the term Over-capitalization A company is said to be over-capitalized when its earnings are not large enough to yield a fair return on the amount of stocks and bonds that have been issued or when the amount of securities outstanding exceeds the current value of the asset. Q. Meaning of the term Under-capitalization According to Gerstenberg, A corporation may be under-capitalized when the rate of profits it is making on total capital, is exceptionally high in relation to the return enjoyed by similar situated companies in the same industry or when it has too little capital with which it conducts its business. Thus, under-capitalization arises when the company is earning exceptionally high profits or when it has insufficient capital to conduct its business. Q. Causes of over-capitalization and under-capitalization Over- capitalization Excessive issue of shares and debentures for raising funds that can be profitably employed. Payment of high promotional expenses. Acquisition of assets at inflated prices at the time of floating the company, thus allowing a substantial part of the capital to remain watered. Floating the company under inflationary conditions. Liberal payment of dividend and lack of retaining funds for self-financing. Under-capitalization The management of the company may follow a conservative dividend policy leading to high reserves. This would increase the earning capacity of the company. The management of the company may be highly efficient. It may finance long-term projects out of short-term funds. A company may apparently have insufficient capital, but it may actually have large secret reserves.
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Under-estimation of capital requirements of the company will lead to undercapitalization. Q. What are the effects or consequences of under-capitalization? An under-capitalized company is financially sound and it offers higher rate of dividend. Its effects are as under:1. Higher rates of dividend encourage competition in the business. New companies enter the field because of higher prices. 2. Higher dividends prompt employees to ask for higher remuneration and bonus. 3. Consumers may feel that they are being exploited by the company by charging higher prices. 4. The management may be tempted to manipulate the prices of shares of the company. 5. Under-capitalization may attract government control and higher taxation. Q. What are the consequences or effects of Over-capitalization? 1. Over-capitalization leads to reduction in the rate of dividend on the equity shares. 2. Over-capitalization leads to fall in the market value of the shares. 3. Over-capitalization creates false sense of security and leads to inefficiency bringing about a fall in quality of companys products price. 4. Over-capitalization causes the waste and misappropriation of the companys funds. 5. Over-capitalization leads to low return on the capital invested. The rate of dividend will fall. Q. What do you mean by Capital Structure? Capital structure refers to the composition or make up of the amount of long-term financing. Capital structure is concerned with the types of securities to be issued and the relative proportion of each type of security. Q. What factors influence the capital structure of the company? An appropriate capital structure can be determined by deciding the proportion of various types of securities to be issued. But this requires considerable planning and it depends upon a number of factors. Trading on equity; Stability of sales; Cost of capital; Cash flow ability; Control; Flexibility; Size of the company; Market conditions. Q. What do you mean by Optimum capital structure? Optimum capital structure may be defined as that mix of debt and equity which results in the lowest average cost of capital. Q. State briefly the essentials of an ideal capital structure. An ideal capital structure should possess the following characteristics:1. A sound capital structure of a company should be guided by the clear-cut objectives, which may be maximization of the wealth of the shareholders and the minimization of the cost of capital.
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2. A sound capital structure should be determined that fluctuations in the earning of the company do not involve heavy strain on its capital structure. 3. Capital structure of a company should be flexible enough to facilitate expansion and contraction of fund according to the changed conditions. 4. Risk and return should be balanced in a sound capital structure. 5. Sound capital structure should provide maximum control of the equity shareholders on the company affairs. Q. Explain the term Capitalization Capital is the basis of all financial decisions and the term capitalization has been derived from it. Capital means the total funds invested in the business and include owners funds, long-term loans and other reserves which are represented by assets. Capitalization is the valuation of this capital and will include owners funds, borrowed funds, long-term loan, reserves and any surplus earnings. Q. Remedies of under-capitalization 1. Under-capitalization may be remedied by increasing the par value and or number of equity shares by revising upward the value of assets. This will lead to decrease the rate of earning per share. 2. Management may capitalize the retained earnings by issuing bonus shares to the equity shareholders. This will also reduce the rate of earnings per share without reducing the total earnings of the company. 3. Where under-capitalization is due to insufficiency of capital, more shares and debentures may be issued to the public. Q. Remedies of over-capitalization 1. By redeeming the debentures, over-capitalization can be reduced. 2. Over-capitalization may be corrected by redemption of preference shares, if they carry high dividend rate. 3. Management should follow a conservative policy in declaring dividend and should take all measures to cut down unnecessary expenses on administration. Q. Venture Capital Venture capital is a form of financing especially designed for funding high technology, high risk and perceived high reward projects. While a conventional financier seeks to fund projects with proven technologies and already established markets, a venture capitalist provides funds to the entrepreneurs pursuing new and hitherto unexplored avenues and ideas. Thus, venture capital helps the entrepreneurs translate their new ideas into commercial production. It especially helps in financing of high technology projects and helps translate research and development into production. International Finance Corporation Washington (IFCW) defines venture capital as equity or equity featured capital seeking investment in new ideas, new companies, new products, new products, new
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processes or new services that offer the potential of high returns on investment. It may also include investment in turnaround situations. Q. Pre-shipment Finance Pre-shipment finance refers to the financial assistance provided to the exporters before actual shipment of goods. Pre-shipment finance is provided to the exporters for the purposes like purchase of raw-materials, their processing and converting into finished goods and packaging them. For these purposes, the following pre-shipment finance is made available:Packaging credit; Advance against incentives; Advance against duty drawback. Pre-shipment credits are granted by the banks under concessional rates of interest at 7.5% per cent. Credit can be extended up to a maximum period of 6 months. Q. Post-shipment Finance Post-shipment finance may be defined as any loan or advance granted or any other credit provided by a bank to an exporter of goods from India from the date of extending the credit after shipment of goods to the date of realization of export proceeds. Thus, post-shipment finance serves as bridge loan for the period between shipment of goods and the realization of proceeds. Such loan is usually provided for a maximum period of 6 months. Interest is charged at the rate of 8.65 per cent.
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ECONOMIC ACTIVITIES AND BUSINESS CORRESPONDENCE

Q.Inflation- Meaning Inflation is a phenomenon of excess demand. It is a state of affairs in which there is excess demand for goods in the economy as a whole. It means that the level of spending directed towards the home produced goods exceeds the maximum output of goods which is attainable in the long period, given the existing productive resources. According to Emele James, Inflation is a self-perpetuating and irreversible upward movement of prices caused by an excess of demand over capacity to supply. According to Keynes, Inflation is the result of the excess of aggregate demand over the available aggregate supply and true inflation starts only after full employment. According to A.J. Hagger, By inflation we shall mean a situation, in which there is persistent upward movement in the general price level, or in which there would be such a persistent upward movement, but for the presence of direct control over prices. Thus, it is clear from the above that inflation may be defined as a sustained rise in the general level of commodity prices over some period of time.
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Q. Causes of Inflation
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Inflation may be due to the operation of one or more of the following factors. Some of them result in increased demand for goods, while others result in shortage of goods on the supply side. These factors are: (a) Increase in money supply- This may take place in two ways like more currency may be issued, Banks may create more credit. Both may increase simultaneously. (b) During wars, need of the military have to be met with first of all. The supply of goods for the civilians is reduced. Prices look up. (c) Sometimes, producer and traders may stock commodities to charge higher prices in future. This creates artificial scarcity and prices rise in the market. (d) Strong trade unions may be able to increase their wages without an equal increase in productivity. Wage rise pushes up cost, which, in turn, pushes up prices, which again pushes up costs and so on the expanding spiral. (e) Hoarded money may be brought into the market in the form of greater demand for consumers goods and for investment goods. Such increase in demand may push up prices. (f) The government spends, more than its revenues. This often results in the putting of new notes. Quantity of money increases. A price goes up. (g) The government may be repaying old debts. This increases the purchasing power of the people. (i) As population increases demand for goods and services, increases, prices rise. (j) There may, too much rain or too little rain. Agricultural goods decline in supply. Their prices rise. (k) If there is lack of industrial peace in the country, strikes and lock-outs are common, then production falls in the country and prices go up. Q. Effects of Inflation Inflation affects different people, differently. This is because of the fall in the value of money. When the value of money falls or prices rise, same groups of the society gain some lose and some stand in between. (a) During periods of rising prices, debtors gain and creditors lose. When prices rise, the value of money falls. Though debtors return the same amount, but they pay less in terms of
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goods and services. This is, because the value money is less than, when they borrowed the money. Thus, the burden of the debt is reduced and debtors gain. On the other hand creditors lose. Although they get back the same amount of money, which they lent, they receive less, in real terms, because the value of money falls. (b)Salaried workers such as clerks, teachers, and other white collar people lose, when there is inflation. The reason is that their salaries are slow to adjust, when prices are rising. (c) Pensioners, recipient of interest and rent. Similarly, the rentier class, consisting of interest and rent receivers, get fixed payments. The same is the case with the holders of fixed interest bearing securities, debentures and deposits. All such persons lose, because they receive fixed payments, while the value of money continues to fall with rising prices. (d) When prices start rising, production is encouraged. Producers earn windfall profits in the future. They invest more in anticipation of higher profits in the future. This tends to increase employment, production and income. But, this is only, possible up to the full employment level. Further increase in investment beyond this level, will lead to severe inflationary pressures within the economy, because prices rise, more than the production as the resources are fully employed. So, inflation, adversely affects production after the level of full employment. (e) Inflation affects, adversely, the balance of payments of a country, when prices rise, more rapidly, in the home country than in foreign countries. Our products become costly compared to foreign products. This tends to increase imports and reduces export, thereby making the balance of payments unfavorable for our country. (f) Inflation encourages speculation. During inflationary periods, the energies of the business community are dissipated in speculative activities to earn quick profits. Q. How inflation can be controlled As we know that inflation is caused by the failure of aggregate supply to equal the increase in aggregate demand. Inflation can, therefore be controlled by increasing the supplies and reducing money incomes in order to control aggregate demand. The various measures taken to control inflation are as follows:
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(a) One of the important monetary measures is monetary policy. The central bank of the country adopts a number of methods to control the quantity and quality of credit. For this purpose it raises the bank rate, sells securities in the open market, raises the reserve ratio, and adopts a number of selective credit control measures. (b) However, one of the monetary measures is to demonetize currency of higher denominations. (C) The most extreme monetary measure is the issue of new currency in place of the old currency. Under this system, one new note is exchanged for number of notes of the old currency. Q. Meaning of Monetary Policy Monetary policy is primarily concerned with the management of the supply of money or in a growing economy, with managing the rate of growth of money supply per period. Or in other words, monetary policy means any conscious action undertaken by the monetary authority to change the quantity, availability or cost of money. Q. Types of Inflation (a) Creeping Inflation: It is the mildest form of inflation and is not considered to have any dangerous effects on the economy. As a matter of fact, creeping inflation is thought to be the inevitable consequence of economic development. It is argued that creeping inflation does not allow the economy to fall a prey to economic stagnation. According to Kent, When prices rise by not more than 3% per annum, the situation may be described as that of creeping inflation. (b) Walking Inflation: The next stage, from the point of view of rapidity of inflation, is the walking inflation. When, over a decade the prices rise above from 30% to 40% this may be described as walking inflation. It is significant in so far as it gives us the red signal of hyperinflation. (c) Running Inflation or Galloping Inflation: When the sped of price rise accelerates walking inflation gets converted into running inflation. Running inflation would record a 100% increase in prices over a period of ten years. In galloping inflation, prices rise every moment.
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(d) Deficit Induced Inflation: Is that which is the result of deficit financing by the government i.e., spending more than revenue either by taking resort to printing press or by borrowing from the banking system etc. (e) Wage Induced Inflation: Is that which is caused by an increase in money wages. (f) Profit Induced Inflation: Is that which is due to an increase in the profits Methods of Credit Control (a) General or Quantitative Techniques 1. Bank rate is an important weapon in the armory of a central bank. The principle underlying the mechanism of bank rate policy is that a change in the bank rate will be followed by a corresponding change in market rates. During the inflationary tendencies, the central bank will raise the bank rate. This will raise the cost of borrowing of the commercial banks and consequently they will also increase their lending rates. Therefore, the borrowing from the banks by the business community will be checked and it will lead to contraction of credit. This will arrest the inflationary conditions. Similarly bank rate will be lowered under deflationary situations. Lowering of bank rate will lower the interest rate structure and the business community will borrow more. There will take place an expansion of credit and the economic activity will be revived. 2. Open market operations are another method adopted by a central bank to control credit. This method came into prominence only after the First World War. In spite of the limitations of open market operations, there is no denying fact that it is more direct and effective method of controlling credit than the bank rate policy, because the initiative lies with the central bank in the case of open market operations. In addition to the objective of controlling the volume of credit through the absorption or release of commercial banks reserves, the technique of open market operations is utilized for several other purposes as well. These are: (a) Making bank rate more effective; (b) Offsetting seasonal stringency or affluence of funds; (c) Supporting the securities market; (d) Influencing the term structure of interest rates. 3. Variable Reserve Ratio, the third tool of monetary management available to the central bank. These days commercial banks are required either by law or custom to maintain a certain percentage of their reserves with the central bank. This power of the central banks
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to fix the reserve ratio has added another tool in their armoury of credit control weapons. U.S.A. was the first country to adopt this new method of credit control. This has been later adopted by several other countries like New Zealand, Mexico, Sweden, Ecuador, Australia, Ireland, West Germany, Sri Lanka, Pakistan, Burma, Canada, and India etc. (b) Selective or Qualitative Credit Control Quantitative credit control influences only the total volume of credit and cannot prevent the flow of funds into undesired channels. On the other hand, selective credit control seeks to diversify the flow of credit into desirable and productive uses. The primary objective of selective credit control is to distinguish between the essential and non-essential uses of bank credit and help the funds to flow into desirable channels and uses without affecting the economy as a whole. The following are the main forms or types of selective credit controls that are used by the central bank. (a) Changes in the margin requirements on security loans (b) Regulation of consumer credit (c) Rationing of credit (d) Direct Action (e) Moral Suasion Q. Meaning of Law of Demand Law of demand states that higher the prices lower the quantity demanded, and vice versa, other things remaining constant, i.e., other things remaining same. That is, given prices of the related goods, income and tastes and preferences of the consumer, if prices of the good increases its quantity demanded decreases, while if price of the good decreases its quantity demanded increases. The law of demand operates due to the underlying effects of substitution and real income changes. Any change in the commodity price affects amount demanded of the commodity in two ways:(a) Substitution effect of a price change; and (b)Income effect of a price change. Exceptions:(a) Use of giffen goods;
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(b)Commodities which are used as status symbols; (c) Expectations of change in the price of the commodity. Q. Meaning of Gross National Product (GNP) Gross national product refers to the total value of final goods and services produced in the country during a given period of time. Gross national product may be defined as current worked out value of all goods and services produced by the economy during an income period. Therefore, Gross national product is the sum total of the money value of final goods and services produced by a nation in a particular period say one year. GNP = P x Q Here, GNP = Gross National Product; P = Market price and Q = Final goods and services produced. Features:1. Gross national product does not take into account the depreciation of goods and services during the process of production. 2. Gross national product excludes the transfer of payments. 3. Gross national product is measured in monetary terms. 4. Gross national product of the value of only final goods and services produced during a given period. 5. Capital gains accrued on capital are excluded from gross national product. Q. Meaning of Gross domestic product (GDP) Gross domestic product refers to the total of market value of all final goods and services produced within the domestic territory of a country during a given period of time. Gross domestic product is defined as the market value of the output of final goods and services produced in the domestic territory of a country during an accounting year. Therefore, GDP = Value of gross output in domestic territory value of intermediate consumption = Gross value added at market price. Features:1. Gross domestic product includes only those goods and services which come to the market for sale.
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2. Imputed value of goods and services which do not come to the market for sale is also included in gross product. 3. Only final goods and services are included in the gross domestic product. 4. Transfer payments, capital gains are excluded from GDP. 5. The value of second hand goods is excluded from GDP. Q. Meaning of Net National Product (NNP) Net national product refers to the net money value of final goods and services produced at current prices in one year in a country. If we deduct the depreciation charges from the gross national product, we will get the net national product at market price. Thus, net national product is the net money value of final goods and services produced during the year. NNP = GNP at market price Depreciation. Q. Meaning of Private Income Private income refers to the income obtained by private individuals from any source whether productive or unproductive. Private income = Domestic income + Net factor income from abroad + Net current transfer payments from the government + Net current transfer payments from the rest of the World + Interest on national debt Property and entrepreneurial income of the government saving of the non-departmental undertakings social security contributions. Q. Meaning of Personal Income Personal income refers to the income received by the individuals of a country in a year from all sources. Therefore, personal income is the current income received by the person from all sources including transfer income from government and business. Personal income = Private income Savings of private enterprises corporation tax. Q. Disposable Income Disposable income may be defined as the actual income which can be spent on consumption by individuals and families. Thus, disposable income is that part of income which is left after the subtraction of direct taxes. Q. Meaning of Per Capital Income It refers to the income received by an individual in a certain year in a country.
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Real income is the national income expressed in terms of level of prices of a particular year taken as base. Q. Meaning of National Income National income is the sum of wages, rent, interest and profit or the sum of all goods and services produced by the economy during one income period. Q. Methods of measuring national income 1. Net product or value added method According to this method, the sum of net value of goods and services produced at market prices is found. Three steps are involved in calculation of national income through this method: Gross product is calculated by summing up the money value of output in the different sectors of the economy; the money value of raw material and services used and the amount of depreciation of physical assets involved in the production process are summed up; and the net output or value added is found by subtracting the aggregate of the cost of raw material, services and depreciation from the gross product found. 2. Income method This method is also known as the factor-share or income-distributed method. According to this method, the incomes received by all the basic factors of production used in the production process are summed up. 3. Expenditure method This method is also known as the final product method. According to this method, the total national expenditure is the sum of the expenditure incurred by the society in a particular year. Q. Difficulties of national income measurement 1. The main difficulty occurs in the measurement of national income is double counting. It means that a commodity is accounted more than one place. 2. Another problem arises regarding the choice of method. It means which method may be chosen to measure national income in a country. 3. Another problem is constant change in prices while calculating national income.
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4. Insufficient or inadequate data poses a great difficulty to measure national income. 5. Another problem arises at what stage of economic activity, national income may be measured. It means whether national income be calculated at market price or factor price, wholesale price or retail price. Q. Meaning of Fiscal Policy Fiscal policy refers a policy under which the government uses its expenditure and revenue to produce desirable effects and avoid undesirable effects on the national income, production and employment. Objectives: 1. To promote necessary development in the private sector through fiscal incentive. 2. To reduce regional disparities. 3. To remove poverty and unemployment. 4. To arrange an optimum utilization of resources. 5. To control the inflationary pressures in economy. 6. To reduce the degree of inequality in the distribution of income and wealth. Q. Meaning of Market The word market refers a body of persons in such commercial relations that each can easily acquaint himself with the rates at which certain kinds of exchanges of goods or services are from time to time made by the others. In other words, a market is any area over which buyers and sellers are in close touch with one another, either directly or through dealers, that the price obtainable in one part of the market affects the prices paid in other parts. Q. Meaning of Perfect Competition The perfect competitive market is characterized by:1. A very large number of relatively small buyers and sellers. A single buyers or sellers actions cannot therefore, have any perceptible influence on market price. The firm is thus, a price taker and quantity adjuster. 2. All sellers are selling homogenous products. 3. The firms are free to enter or leave the industry. 4. The firms in the industry do not collude with each other.
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5. Each buyer and seller operates under conditions of certainty, being endowed with complete knowledge of prices, quantities, costs and demand. Q. Meaning of Monopoly A pure monopoly exists if one and only one firm produces and sells a particular commodity in the market. No other seller can enter the market; else monopoly would cease to exist. Features:1. Only one firm sells the commodity having no rivals or direct competitors. 2. Indirect rivalry or competition may exist in the form of the existence of substitutes, and the monopolists product competing with all other goods and services in the general struggle for the consumer rupee. But close substitutes are believed to be non-existent. No other seller can enter the market, for whatever reasons like technical, legal, or economic. 3. Monopolist is a price-maker. He tries to take the best of whatever demand and cost conditions exist without the fear of new firms entering to compete away his profits. Q. Meaning of Monopolistic or Imperfect Competition Monopolistic competition refers to a situation where there are many sellers of a differentiated product. There is competition which is keen, though not perfect, between many firms making very similar products, which are close but not perfect substitutes. Since the products are differentiated, each seller can independently decide about his own priceoutput policies. Q. Forms of markets 1. National market- when the buyers and sellers of goods are spread over the whole country, the market in such cases is called National market. 2. International market- when the commodities are brought and sold all over the world, the market in such cases is called international market. 3. General marketand sold. 4. Provincial market- When few goods are mostly sold and purchased throughout the province or state. 5. Imperfect market- The same commodity has different prices on account of imperfect competition. This is called imperfect market.
It is also called mixed market where all kinds of goods are brought
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6. Perfect market- When the competition amongst the buyers and sellers is so perfect that there is a tendency for the same prices to prevail, for the same commodity, in the market and at the same time, the market is said to be perfect. 7. Wholesale market- Is one where the volume of commodity transacted is large. 8. Retail market- Retail market is open where goods are bought and sold in small quantities.
Q. Meaning of Derived demand The demand for certain commodities is not direct; it is derived or obtained from the demand for some other commodities. If for example we want cotton not for the sake of cotton but for the sake of clothes. Our demand for cotton is not, direct; it is derived from the demand from clothes. Q. Meaning of Joint demand Things or commodities are said to be in joint demand, when they are always demanded together when we have a demand for writing, we require not only a piece of paper but also pen and ink. So pen, ink and paper are demanded together. They are said to have a joint demand. Q. Meaning of Composite demand When a thing is demanded not for one purpose, but for so many purposes. In other words, when the demand for anything is composed of the demands for it for several purposes, it is said to have a composite demand. Q. Meaning of Elasticity of Demand When price rises, demand contracts and when price falls, demand extends. This extension and contraction which takes place in demand as a result of change in prices is called elasticity of demand. It is defined as the degree to which a change in price will change the quantity demanded. Q. Factors affecting the elasticity of demand 1. In case of comforts the demand tends to be elastic. This is so because we can always do without comforts. Hence, a rise in its price will mean that the demand for comfort will fall.
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2. In case of those commodities whose prices are very high or prices are very low, the demand is inelastic. 3. The demand for a commodity in one use may be elastic while in another use inelastic. 4. Demand for the things of taste and which are in fashion is inelastic. 5. In case of very rich persons or very poor persons, the demand is inelastic. Q. Meaning of Equi-Marginal Utility The law of Equi-marginal utility is too stated as follows:Maximum satisfaction out of the expenditure of a given sum can be obtained if the utility derived from the last unit of money spent on each object of expending is, more or less the same Therefore, the law tells us how one should spend his limited income so that he is able to get maximum satisfaction. A consumer will get maximum satisfaction only when he obtains equal marginal utility at the margin of different purchases. Limitations:1. Sometimes the consumers are ignorant as to how to get maximum satisfaction from their money. They fail to get maximum satisfaction from their expenditure because that they do not bother to weigh carefully the marginal utilities of all things they buy. 2. Sometimes a producer is ignorant as to how to get maximum production at minimum cost. 3. When a consumer is a slave if habits and fashions, he cannot get maximum satisfaction. Q. Meaning of Law of Consumers Surplus Consumers surplus is the difference between the price that you are prepared to pay rather than to go without the commodity and the price that you actually pay. The law states that consumers, in general, obtain surplus satisfaction from the commodities which they consume or purchase. The law is concerned with the consumers behaviour. Assumptions:1. It is assumed that the utility of a commodity is dependent on the supply of that good alone, i.e., eacg commodity is assumed to be an independent commodity. 2. It is assumed that the commodity has no substitutes. Even if a commodity has a number of alternatives all of them should be taken together as one commodity.
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3. Marshall assumes that the units being consumed are similar. There should be no change in the units being consumed. 4. Marshall assumes the marginal utility of money to be constant. Importance:1. The concept of consumers surplus is of great use in the field of economic theory as it tells us the distinction between utility and price. 2. The law of consumers surplus helps us to implement the law of maximum satisfaction as this law guide the consumer to spend his limited money on those goods which give him more consumers surplus. 3. The concept of consumers surplus is of great importance in the field of value and price formation to businessmen and monopolists. 4. It is of great use in the field of international trade as the consumers surplus enables us to measure the advantages of international trade. Q. Meaning of Law of diminishing marginal utility According to Dr. Marshall, the law of diminishing marginal utility states that the additional benefit which a person derives from a given increase of a stock of a thing diminishes with every increase in the stock which he already has. In other words, this law means that as we consume more and more units of a commodity, the utility obtained from the successive units will go on demanding. This tendency of the marginal utility to decline with the consumption of an additional unit is called the law of diminishing marginal utility. Importance:1. The law has got great importance in economics because most of the important laws of economics depend on it. 2. This law is of great use to the Finance Minister of a country, as he will tax the rich at a higher rate and the poor at a lower rate. 3. This law also tells us why the demand curve slopes from upwards to downwards or from left to right and why more commodities is purchased at a lower price. 4. This law is of great importance to consumers as it tells them that if they consume more and more units of the commodity, the utility will go decreasing. Limitations:
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1. The quantity and size of commodity may change. The law does not apply in case of quality and size of the unit change. 2. Utility cannot be measured. It is said that utility is something psychological. It is mental feeling. Hence it cannot be measured. 3. The law does not hold good in case of indivisible goods like motor cycles. 4. The law does not apply in case of status symbol goods such as jewellery, diamonds, etc. such things satisfy consumers tastes for display of wealth.
Q. Distinction between Perfect competition and Imperfect competition Perfect competition 1. Large number of sellers and buyers. 2. Homogenous products. conditions. 4. Free entry for every buyer and seller. 5. Perfect mobility of factors production. 6. No transport cost. 7. No advertisement cost. Imperfect competition 1. Less number of sellers and buyers. 2. Product differentiation. conditions. 4. Articles are sold and bought on of different prices. 5. No entry fee. 6. High transport cost. 7. Lot of money is spent on advertisements. Q. Define Economics Economics tells us how a person tries to satisfy his unlimited wants with his limited means. Therefore, economics is a science of choice when joined with scarce means and unlimited ends. According to Adam Smith, Economics is an enquiry into the nature and causes of the wealth of nation. Economics is that body of knowledge which relates to wealth.
3. Perfect knowledge about the market 3. Imperfect knowledge about the market
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Thus, it clear from the above that economics is what the economists do. Q. Meaning of consumption Consumption means satisfying human wants. It implies destruction of utilities with a view to satisfying human wants. Mere destruction of utility will not mean consumption unless human wants are also satisfied simultaneously. Q. Meaning of wants All those desires for the satisfaction of which a man has the means and the willingness to use those means for satisfaction are called wants. Q. Meaning of Law of substitution In order to get maximum satisfaction a consumer will substitute one thing for another. He will try to possess a good which gives him more satisfaction than a good which gives less satisfaction. Similarly, a producer will substitute one factor of production for another factor of production. Exchange is nothing but substitution of goods for money or money for goods to get the maximum satisfaction. Therefore, it is called the law of substitution. Q. Meaning of law of maximum satisfaction It is called the law of maximum satisfaction because the consumer tries to obtain maximum satisfaction from his limited resources. A consumer purchases goods and services, in order to gain maximum satisfaction, the consumer will spend his money in buying these goods and services in such a way that the marginal utilities of all the goods and services purchased are equal. When this is attained, the consumer gets maximum satisfaction from his income. That is why it is called the law of maximum satisfaction. Q. Meaning of law of indifference When a consumer has distributed his expenditure in such a way that he gets maximum satisfaction, he becomes indifferent to any further changes in the expenditure. That law is called the law of indifference. Q. Meaning of wealth and capital. All those goods which have value or value in exchange are called wealth and that part of wealth which is used for the production of more wealth is called capital. Q. Define Organization
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Organization is a process by which management co-ordinates the activities of a group of persons for the achievement of certain objectives. Thus, organization may be defined as a systematic arrangement of positions in the office and welding together of office staff into a team. It is the process of dividing the total work of the office into jobs, assignment of each job or group of duties to competent personnel and providing the necessary facilities to the personnel. According to Louis A. Allen, Organization is the process of identifying and grouping the work to be performed, defining and delegating responsibility and authority and establishing a pattern of relationship for the purpose of enabling people to work most effectively to accomplish the objectives. According to L.H. Haney, Organization is a harmonious adjustment of specialized parts for accomplishment of some common purpose or purposes. According to J.C. Denyer, Organization is concerned with the arrangement of work with the division of activities, and with the allocation of duties, authority and responsibilities. Thus, it is clear from the above definitions that an organization may be defined as a dynamic process by which office employees and the tasks they perform are properly related to each other. It is the establishment of authority-responsibility relationships among persons to enable them to work effectively together in accomplishing the work of an office. Q. Elasticity of supply Extension and contraction in supply takes place as a result of changes in price this extension and contraction of supply which is caused by price changes is called elasticity of supply. It with a little change in price there is considerable change in supply; it is called highly elastic supply. If however there is sufficient change in price but little change in supply, it is called inelastic supply. Elasticity of supply = Percentage change in quantity supplied -------------------------------------------------Percentage changes in price Q. Meaning of mobility of capital Mobility of capital means the movement of capital from one place to another place and from one one use to another use. Capital is the most mobile of all the factors of production. It is
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very mobile in the form of money, semi-manufactured goods, light machines and tools but is less mobile in the form of heavy machines, factories, buildings, etc. Q. Advantages of mobility of capital 1. Mobility of capital enables us to transfer it to more productive use. 2. It helps us to transfer capital to those areas and uses which suffer or remain backward for want of capital. 3. Mobility of capital encourages commerce and industry within the country as also gives a fillip to international trade. 4. The mobility of capital enables us to transfer it in essential directions and priority uses. 5. Mobility of capital facilitates higher research and new inventions in modern large scale industries. Q. Meaning of Wealth All goods which have value are called wealth in economics. Wealth means economic goods. According to Lord Keynes, All those goods which have value and the capacity to satisfy human wants are called wealth in economics. In short, goods having value i.e., utility, scarcity, transferability or marketability are called wealth. Q. Short notes:(a) Representative Wealth: - It is that wealth which represents another type of wealth like shares certificates, bills of exchange, etc. These are money claims and are called titles to wealth. (b) Social Wealth: - Wealth which does not belong to an individual but to society and people in general is called collective or social wealth. For example, hospitals, colleges, roads, buildings etc. (c) National Wealth: - Wealth which belongs to the entire nation is called national wealth like ports, rivers, forests, minerals, etc. Q. Meaning of Marginal Utility Marginal utility is the utility obtained from the consumption of the marginal unit. Marginal unit is that unit where the consumer stops further consumption. A consumer will stop further consumption where the utility obtained from the consumption of a unit is equal to
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the disutility incurred in paying the price for it. Marginal utility is also defined as the net addition made to the total utility by the consumption of an additional unit. Q. Meaning of Law of increasing returns The law of increasing returns is also called the law of diminishing costs. It is just the reverse of the law of diminishing returns and increasing costs. It applies primarily to manufacturing industries. It states that if we apply more and more units of labour and capital to a manufacturing industrial unit, the returns from successive units of labour and capital go on increasing and costs go on declining. As the scale of production increases and attempts are made to attain maximum production, internal and external economies start operating as a result of which, the production per unit rises and the costs falls. Q. What is Consumer Surplus? According to Marshall, The excess of price which he would be willing to pay rather than go without the thing over that which he actually does pay is the economic measure of this surplus satisfaction. Consumer Surplus = Total Utility (Price X Quantity) It can also be expressed as: - CS = TU (P X Q) Where CS = Consumer Surplus; TU = Total utility; P = Price; Q = Quantity of the commodity Therefore, consumer surplus is the difference between the marginal relation of a unit and the price which is actually paid for it. Q. What is Market Price? When the forces of demand and supply are in equilibrium at a given moment, we get the market price. Market price is the price which tends to prevail in a market on any particular time. It is influenced at a time, though these influences are only temporary and short lived. Market price seldom remains stable, but keeps on changing from day to day, may from hour to hour because the forces or the factors upon which demand depends and the forces on which supply depends keep on changing. Therefore, the market price also keeps on fluctuating. The market price is also known as the short-period price. Q. What are the factors which affecting the demand The main factors which affect the demand are as follows; 2011 WASIM RAJA ALL RIGHTS AND CONTENTS RESERVED LOG ON: - www.acit.co.in
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1. When a thing comes into fashion or people develop a taste or even a habit for it, more or it is purchased, even though its price rises. But when a thing goes out of fashion or when people lose the taste for it, less of it is purchased, even though its price may be falling. 2. When the season for ice goes out, people purchase less of it, even though its price falls but when its season comes again, they purchase more of it, even though its price rises. 3. When a cheap substitute becomes available to us for a commodity, we purchase less of it. Even though its price falls. 4. Successful advertisement for a commodity increases the demand for it, even though its price rises. 5. When a war breaks out, people begin purchasing increasing amounts of commodities, even though the price rise, because they expect the prices to go higher still and vice versa.
INTRODUCTION ABOUT ENTREPRENEURSHIP DEVELOPMENT

The word entrepreneur is derived from the French word Entreprendre which means to undertake i.e., individuals who undertake the risk of new enterprise. The word entrepreneur, therefore, first appeared in the French language in the beginning of the sixteenth century. According to Cantilon, An entrepreneur is a person who buys factor services at certain prices with a view to selling its product at uncertain prices. According to J.B. Say, an entrepreneur is the agent who unites all the factors of production and who finds in value of the products the re-establishment of the entire capital the employees, and the value of wages, the interest and the rent which he plays as well as the profits belonging to himself. He may or may not supply capital but he must have judgement, perseverance and the knowledge of the world of business. He must possess the art of superintendence and administration. According to F.H. Knight, entrepreneurs are a specialized group of persons who bear risks and deal with uncertainty, According to Peter F. Drucker, defines an entrepreneur as one who always searches for change, responds to it and exploits it as an opportunity.
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According to International Labour Organization (ILO), defines entrepreneurs as those people who have the ability to see and evaluate business opportunities, together with the necessary resources to take advantage to them and to initiate action to ensure success. Thus, it is clear from the above definitions, that an entrepreneur is a visionary and an integrated man with outstanding leadership qualities with a desire to excel, the entrepreneur, gives top priority to Research and development. He always works for the well-being of the society. Entrepreneur is one creates his own business. An entrepreneur is a person who perceives a need and then brings together manpower, material and capital required to meet the need. Characteristics of successful Entrepreneurs Characteristics Traits Self-confidence Confidence, independence, individuality, optimism Task-oriented Need for achievement, profit-oriented persistence, perseverance, determination, hard-work, drive, energy, initiative. Risk bearer Risk-taking ability, likes challenges Leadership Leadership behavior gets along well with others, responsive to suggestions and criticisms. Originality Innovative, creative, flexible, resourceful, versatile, knowledgeable. Future-oriented Foresight perceptive Activities or Functions of Entrepreneurs An entrepreneur begins activating his mind and senses taking from the time he dreams of his own venture till the time he actually achieves his dream. His primary functions include seeking opportunities, organizing and co-coordinating agents/ factors of production mobilizing resources and so on. Thus, it can be concluded that an entrepreneur has to act as mother who give birth to an enterprise as well as a father it going on after taking due care of it. The main functions of the entrepreneurs are gives by different expert such as:Kilbys thirteen functions of entrepreneurs divided into four groups as follows: A. Exchange Relationship:1. Perceiving market opportunities 2. Gaining command over scarce resources 3. Purchasing inputs 4. Marketing of the products and responding to competition. B. Political Administration:1. Dealing with the public bureaucracy (concession, licenses and taxes) 2. Managing human relation within the firm. 3. Managing customer and supplier relations. C. Managing Control:1. Managing finance 2. Managing production. D. Technology:1. Acquiring and overseeing assembly of the factory 2. Industrial engineering. 3. Upgrading process and product quality. 4. Introducing new production techniques and products.
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Diagrammatical presentation:Entrepren. Functions Innovation Risk taking Organization building Entrepreneurs Managerial Commercial Functions Functions Planning Production Organizing Marketing Staffing Personnel Directing Accounting Leadership Finance Communication Motivation Co-ordination Controlling The concept of entrepreneurship is an age-old phenomenon that relates to the vision of an entrepreneur as well as its implementation by him. Entrepreneurship is a creative and innovative response to the environment. Entrepreneurship is a composite skill that is a mixture of many qualities and traits such as imagination, risk taking ability to harness factors of production, i.e., land, labour, technology and various intangible factors. Entrepreneurship culture implies a set of values, norms and treats that are conducive to the growth of entrepreneurship. It is the organizational culture that focuses on new opportunities and creation of a set up where these opportunities can be pursued earnestly. Entrepreneurship plays a dominant role in the growth and development of an economy. Entrepreneurship can solve the problems like unemployment, concentration of economic power in the hands of very imbalanced regional development. Entrepreneurship is the ability to start a new enterprise to make more profits by way of producing or marketing goods and services to meet the needs and requirements of customers. It is the ability and quality of entrepreneur to identify an investment opportunity and to organize an enterprise in order to contribute for the real economic growth. According to A.H. Cole, Entrepreneurship is the purposeful activity of an individual or a group of associated individuals, undertaken to initiate, maintain or organize a profit-oriented business unit for the production or distribution of economic goods and services. According to Peter Drucker, Entrepreneurship is neither a science nor an art. It is a practice. It has a knowledge base. Knowledge in entrepreneurship is a means to an end. Indeed, what constitutes knowledge practice is largely defined by the ends, that is, by the practice. According to William Diamond, Entrepreneurship is equivalent to enterprise which involves the willingness to assume risks in undertaking economic activities particularly a new one. It may involve an innovation but not necessarily so. It always involves risk-taking and decision-making, although neither risk nor decision- making may be a great significance. Thus, it is clear from the above definitions that entrepreneurship can be defined as creation of value through people working together to implement an idea through the application of drive and willingness to take risk. Characteristics of Entrepreneurship The main features of entrepreneurship are:Functions of Promotional Functions Discovery of an idea Detailed investigation Assembling the requirements Financing the proposition
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1. Economic Activity: - Entrepreneurship is basically an economic activity because it involves creation and operation of a new enterprise. It is primarily concerned with satisfying the needs of customer with the help of production and distribution of goods and services. 2. Innovation: - Entrepreneurship is an innovative and a creative activity. It involves doing things in a new and better way. It involves doing things in a new and better way. Entrepreneurship is an automatic and creative response to changes in the environment. 3. Decision-making:- Decision-making activity of entrepreneur is one of the important features of entrepreneurship. Entrepreneur takes decisions regarding activities of the enterprise. He decides about the type of business to be done and the ways of doing it. An entrepreneur has to make decision under uncertainty and he has to take actions with unknown and unpredictable results. 4. Function of high achievement: - Entrepreneurship is a function of high achievement. People having high need for achievement are more likely to succeed as entrepreneurs. The achievement motive is relatively stable because profit is merely a measure of success. 5. Organization building: - Entrepreneurship implies the skill to build an organization. Organization building is the most critical ability for entrepreneurial development. This skill means that one can build an organization effectively by delegating responsibility to others. Entrepreneurs need to be good leaders and excellent administrators to be a successful organization builder. 6. Managerial Skill: - Managerial skills and leadership are the most important characteristics of entrepreneurship. Entrepreneurship requires tactful handling of various situations involving risk and uncertainties. To be a successful entrepreneur, one must have more than the drive to earn profits and a mass wealth. The entrepreneur must have the ability and skill to lead and manage the affairs of enterprise. 7. Risk-bearing Capacity: - Risk is the part and parcel of entrepreneurship. An entrepreneur assumes the uncertainty of future. It is always risky to start a new enterprise and doing something new and differently. The functions of entrepreneurship are greatly influenced by various risky situations and factors like increase in competition, change in customer needs and taste, shortage of raw material, change in government policy, and change in technology. Thus, entrepreneur needs to be a risktaker, not risk avoider. 8. Resource Mobilization:- Gap filling is the most significant feature of entrepreneurship. The job of entrepreneur is to fill the gap or make up the deficiencies which always exist in the knowledge about the production function. These deficiencies arise because all the inputs in the production function cannot be marketed. As entrepreneur has to marshal all the inputs to realize final products us, entrepreneurship is a function of input completing and gap filing. Barriers to Entrepreneurship in Jammu and Kashmir Entrepreneurial ventures begin with a big dream in mind of the person concerned. But to transform that dream into reality is not everyones cup of tea. This is because the entrepreneurs face a lot of troubles and problems in the process of attainment of their respective. In spite of all the efforts made by individuals and the government to promote entrepreneurship, some societies are unable to produce sufficient number of successful entrepreneurs. The problems or barriers to entrepreneurship development are as under:1. Environmental Barriers Raw-material: - Non-availability of raw material required for production of goods, especially during the peak season causes impediment in the growth of the business. In such kind of situation, competition causes increase in the price of the raw material. This problem becomes more severe if there are alternative goods or services available in market. It becomes very difficult to shift the consumer back to the former product. Labour: - Human resources have been identified as the most important resource in an organization. But unfortunately, there is always a dearth of the desired manpower in an organization-either because of the lack of skilled labour in the market or because of lack of
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committed and loyal employees in the organization. Both these factors cause implements in the growth of the organization. Machinery: - Good machineries are required in the organization for production and operation of goods. These machineries come at a cost and because of rapid technological developments they also become obsolete very soon and need to be replaced, which requires lot of cash-in-hand. This is very difficult to maintain, especially in a small business organization. Land and Building: - Acquisition of land and construction of building at prime location with respect to business requires expenditure of large amount of scarce cash, especially in the small organizations. An alternative approach could be acquiring land on lease or rent. But this becomes a matter of constant concern for the entrepreneur. Other infrastructure requirements: - Apart from the factors of production mentioned above, there are other infrastructure requirements of the business and which when not present in adequate amount, can further cause barriers to the growth of business. 2. Financial Barriers: - Availability of funds is one of the most important ingredients required for the successful running of a business. There are various methods by which entrepreneur arranges for funds like his own savings, borrowing from friends and relatives, bank and other institutional bodies supporting new ventures. If there is a delay in the release or payments by the source of finance, it causes delay in starting and or running business. 3. Personal Barriers: - These barriers are caused by emotional blocks of an individual. These barriers cause mental obstruction to the individual and lead to the failure in business. Some of the personal barriers are as follows:- Lack of confidence; Lack of dependability on others; Lack of sustained motivation; Lack of patience; Inability to dream. Entrepreneurship and economic development are intimately related. Schumpeter opines that entrepreneurial process is a major factor in economic development. The entrepreneur is the key to economic growth. Whatever be the form of economic and political set-up of the country, entrepreneurship is indispensable for economic development. Entrepreneurship has developed alongside interest in the changing role of small businesses Concept and Definition of Women Entrepreneur Women entrepreneur may be defined as a women or a group of women who innovates imitates for adopts an economic activity. In other words, any women or a group of women who initiate organize and operate a business enterprise. According to the Government of India, a women entrepreneur is defined as, an enterprise owned and controlled by a women and enterprise owned and controlled by a women and having a minimum financial interest of 51% of the employment generated in the enterprises to women. Just as entrepreneurs, women entrepreneurs are those who generate business ideas or select the best opportunity, mobilizes resources, combine the factors of production, undertake risk and operate the enterprise in the most effectiveness with a new to earn profit. Role of women entrepreneurs Like a male entrepreneur, a women entrepreneur performs different functions of different nature some of them are: Generating new business ideas Exploring the prospects of starting new enterprises Undertaking risks and handling of economic uncertainty Employment generation Introducing new ideas of innovation Support to familys income Overall economic growth
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Balanced regional development. Scope and opportunities for women entrepreneur in Jammu and Kashmir The modern world women has been able to overcome the hurdle of societys perception of considering them to the confined to the four walls of the house or viewing them as weak entrepreneurs caught up in limited business area such as papad making, pickle preparation food items, paintings, handicrafts, etc. They have been able for show a remarkable shift from these small entrepreneurs at ventures to modern, technology-based business ventures such as: Computer services and information dissemination. Trading in computer stationery Computer maintenance Travel and tourism Quality testing, quality control laboratories Sub-assemblies of electronic products Nutrition clubs in schools and offices Poster and indoor plant library Recreation centers for old people Culture centers Screen printing, photograph and video shooting Stuffed soft toys, wooden toys Mini laundry, community eating centers Community kitchens Distributing and trading of house hold provision as well as saris, dress materials, etc. Job contracts for packaging of goods Photocopying, typing centres Beauty parlors Communication centres like STD booths, cyber cafes, etc. Opportunities for women in semi-urban areas of Jammu and Kashmir Considering the socio-economic, cultural and educational status and the motivational of women in semi-urban, particularly projects with low investments, low technical know-how and assured market are suggested for the improvement opportunities identified for semi-urban women are enlisted below: Production of liquid soap, soap powder, detergents, deodorants, etc. Office stationery like cushion pads, germ, ink pads etc. Convenience readymade, instant food products including pickles, spices, papads etc. Community kitchens and communication services Different types of training and coaching classes Child care centres and culture canters for children Nursery classes Manufacturing of leather goods Garments Problems of women entrepreneurs of Jammu and Kashmir Women entrepreneurs encounter two sets of problem, viz. general problems of entrepreneurs and problems specific to women entrepreneurs. These are as follows:1. Problem of finance: - Finance is regarded as life-blood for any enterprise, be it big or small. However women entrepreneurs suffer from shortage of finance on two counts. Firstly, women do not generally have property on their names access to the external sources of funds is limited. Secondly,
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the banks also consider women less credit-worthy and discourage women borrowers on the belief that they can at any time level their business. Given such situation, women entrepreneurs are bound to rely on their own savings, if any and loan from friends and relatives who are expectedly meager and negligible. Thus, women entrepreneurs fall due to the shortage of finance. 2. Scarcity of raw-material: - Most of the women entrepreneurs are plagued by scarcity of raw material and necessary inputs. Added to this is the high price of raw material, on the one hand and getting raw material at the minimum of discount, on the other. 3. Stiff Competition: - Women entrepreneurs do not have organization setup pump in a lot of money for canvassing and advertisement. Thus, they have to face a stiff competition for marketing their products with both organized sector and their male counterparts. Such a competition ultimately results in the liquidation of women enterprises. 4. Limited Mobility: - unlike men, women mobility in India limited due to various reasons. A single women asking for room is still looked upon suspicion. Procedural formalities involving in starting an enterprise coupled with the officials humiliating attitude towards women compels them to give attitude towards women compels them to give up idea of starting an enterprise. 5. Family ties: - In India, it is mainly a womans duty to look after the children and other members of the family. Man plays secondary role. In case of married women, she has to strike a fine balance between her business and family. Her total involvement in family leaves little or no energy and time to devote for business. Support and approval of husbands seem necessary condition for womens entry into business. Accordingly, the educational level and family background of husbands positively influence womens entry into business activities. 6. Lack of education: - In India, around three-fifths (60%) of women are still illiterate. Illiteracy is the root cause of socio-economic problems. Due to the lack of education and that too qualitative education, women are not aware of business, technology and market knowledge. Also, lack of education causes low achievement motivation among women. 7. Low risk bearing ability: - Women in India lead a protected life. They are less educated and economically not self-dependent. All these reduce their ability to bear risk involved in running an enterprise. Risk-bearing is an essential requisite of a successful entrepreneur. In addition to above problems, inadequate infrastructural facilities, shortage of power, high cost of production, social attitude, low for achievement and social-economic constraints also hold the women back from entering into business.
LOSS OF PROFIT POLICY OR CONSEQUENTIAL POLICY Ans: The following steps are followed to arrive at the amount of a claim under a loss of profit insurance: Step1: Calculate the Gross Profit= Net profit + All Insured Standing/constant/fixed expenses Step2: Calculate rate of gross profit Gross Profit/Net Sales x 100 Step3: Calculate short sales or loss of turnover Short Sales = Standard sales Actual sales Step4: Calculate gross profit on short sales.
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= Short sales x Rate of Gross profit Step5: Calculate the amount of admissible additional expenses as follows:*** The least of the following shall be taken as admissible additional expenses: (a) Actual Additional expenses incurred. (b) Cross profit on additional sales (c) Additional expenses = Gross profit on Annual Turnover -----------------------------------------------------------------------------------------Gross profit on Annual turnover + uninsured standing charges Net profit + Insured standing charges --------------------------------------------------Net profit + All standing charges
Or Additional Expenses x
Step 6:- Calculate the Gross Claim 1. Loss of Gross profit on Short sales ----------2. Add:- Additional Admissible Expenses-------------*** 3. Less:- Savings in Insured Standing charges-----------Total Gross Claim Step7: Apply Average Clause: Net Claim = Gross Claim x Policy Value ---------------------Gross profit on Annual Turnover
PROFORMA OF MEMORANDUM TRADING ACCOUNT (Period starts from the beginning of the year up to the date of fire)
Dr. Cr.
Particulars Amoun t Particulars Amou nt
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To opening stock To Purchases Less:- Purchases returns or Return Outwards. Less:- Goods taken for personal use To Direct expenses: Wages Wages and salaries Productive wages Manufacturing wages Factory expenses Carriage Carriage inwards Carriage on purchases Cartage Freight or freight inwards Motive power Coal, gas, water, oil grease, etc. Factory rent and insurance Dock charges Octroi, customs duty To Gross profit C/D (If credit side total exceeds total of debit side)
By Sales:Cash sales Credit sales Less:- Sales returns or Return inwards By Closing stock By Gross loss C/D (If debit side total exceeds credit side total)
***
***
(a)STATEMENT OF LOSS OF STOCK:Stock on the date of fire (i.e., closing stock) Rs. -------------Less: - Salvaged Stock or saved stock Rs. ------------Loss of Stock (Claim to be Lodged) Rs. ********* (b) AVERAGE CLAUSE:-Net Claim = Loss of stock x Policy Value/Insurance Policy Amount --------------------------------------------------Stock on the date of Fire***
***NOTE: - If the stock on the date of fire figure/amount will be bigger than the policy value then it will be applicable or in the vice versa case it will be not be applicable.
SELF-BALANCING SYSTEM
In the General Ledger Debtors/ Sales/ Sold Ledger Adjustment Account
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Particulars

Amoun t Particulars
P a g e | 81 Amoun t
To Balancing b/d (Opening balance Dr. Balance) To General Ledger Adjustment Account: Credit Sales Cheques and B/R Dishonored Interest Charged to debtors or customers Notary charges debited to customers Cash returned to customers or debtors Sundry charges debited to customers Interest on customers overdue amount Bills dishonored B/R endorsed dishonored Cash paid to customers Sales not recorded Cash refund to debtors B/R (Cancelled upon Renewal) To Balance C/D (if any) (Closing Balance of Debtors/sales- Cr. Balance) (Advance from customers at the end)
By Balance b/d (if any) (Opening balance Cr. Balance) By General Ledger Adjustment A/C: Sales Return/ Return inwards Cash and Cheque received B/R Received Discount allowed to debtors Bad-debts written off Allowance allowed to debtors Collection from debtors Bills receivable drawn Transfer to purchases ledger Transfer from purchase/ creditors ledger. Rebate allowed to debtors
By Balance C/D **** (Closing Balance of debtors- Dr. Balance) (Dues from customers at the end)
In the General / Nominal Ledger Purchases/ Bought/ Creditors Ledger Adjustment Account
Particulars Amount Particulars Amount
To Balance b/d (if any) (Opening balance of Balance)
Creditors-
Dr.
By Balance b/d (Opening balance Balance)
of
Creditors-
Cr.
To General Nominal Ledger Adjustment A/c: Cash and Cheque paid to creditors Return outwards/ purchases return Discount received from creditors Cheque issued to suppliers B/P Accepted B/P Renewed Bills endorsed to creditors Transferred from debtors/sales ledger Transferred to debtors/sales ledger To Balance C/D (Closing balance Balance) of CreditorsCr.
By General / Nominal Ledger Adjustment A/c: Credit purchases Cheques and B/P Dishonored Cheque issued dishonored Bills endorsed dishonored Sundry charges Interest on renewed bills Bills payable cancelled for renewal
By Balance C/D (if any) (Closing balance of Creditors- Dr. balance)
SECTIONAL BALANCING SYSTEM CONTROL ACCOUNTS

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Dr. Cr.
Particulars
ACADEMY OF COMMERCE & IT TOTAL DEBTORS ACCOUNT

Amoun t Particulars
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Amoun t
To Balancing b/d (Opening balance Dr. Balance) Credit Sales Cheques and B/R Dishonored Interest Charged to debtors or customers Notary charges debited to customers Cash returned to customers or debtors Sundry charges debited to customers Interest on customers overdue amount Bills dishonored B/R endorsed dishonored Cash paid to customers Sales not recorded Cash refund to debtors B/R (Cancelled upon Renewal) To Balance C/D (if any) (Closing Balance of Debtors/sales- Cr. Balance) (Advance from customers at the end) Dr. Cr.
Particulars
By Balance b/d (if any) (Opening balance Cr. Balance) Sales Return/ Return inwards Cash and Cheque received B/R Received Discount allowed to debtors Bad-debts written off Allowance allowed to debtors Collection from debtors Bills receivable drawn Transfer to purchases ledger Transfer from purchase/ creditors ledger. Rebate allowed to debtors
By Balance C/D **** (Closing Balance of debtors- Dr. Balance) (Dues from customers at the end)
TOTAL CREDITORS ACCOUNT

Amount Particulars Amount
To Balance b/d (if any) (Opening balance of Balance)
Creditors-
Dr.
By Balance b/d (Opening balance Balance)
of
Creditors-
Cr.
Cash and Cheque paid to creditors Return outwards/ purchases return Discount received from creditors Cheque issued to suppliers B/P Accepted B/P Renewed Bills endorsed to creditors Transferred from debtors/sales ledger Transferred to debtors/sales ledger To Balance C/D (Closing balance Balance)
Credit purchases Cheques and B/P Dishonored Cheque issued dishonored Bills endorsed dishonored Sundry charges Interest on renewed bills Bills payable cancelled for renewal
of
Creditors-
Cr.
By Balance C/D (if any) (Closing balance of Creditors- Dr. balance)
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In the Books of the Head Office -----------Branch Account for the year ended -----------Dr. Cr. Particulars To Balance b/d:(opening balance of Assets) Cash in hand Sundry debtors at branch Petty cash at branch Stock at branch Furniture at branch Imprest cash at branch Prepaid expenses Prepaid fire insurance Plant at branch Any other asset but opening To Goods sent to Branch by the H.O. To Cash/Bank account:(Branch expenses) Rent, rates and taxes Insurance Petty expenses Salaries to staff Printing and stationery Miscellaneous expenses Sundry expenses Any other expenses in addition to above To Cash or Bank Account (Plant/furniture purchased during the year by the branch in the question)* To Balance c/d:(closing balance of Liabilities) Sundry creditors Outstanding expenses like salaries, wages etc. To Branch Profit (If there is profit)
PROFORMAS OF BRANCH ACCOUNTING
Amount
Particulars By Balance b/d:(opening balance of liabilities) Sundry creditors Outstanding expenses like salaries, wages etc. By Cash Account:Cash sales Cash received or collection from debtors or customers. By Goods sent to Head office (goods returned by the branch to the head office) By Balance c/d:(Closing balance of Assets) Cash in hand Sundry debtors at branch Petty cash at branch Stock at branch Furniture at branch Imprest cash at branch Prepaid expenses Prepaid fire insurance Plant at branch Any other asset but closing
Amount
*****
By Branch Loss (If there is loss)
*****
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Rule: Debtors System (Cost Price Method)
PROFORMAS OF BRANCH ACCOUNTING

In the Books of the Head Office -----------Branch Account for the year ended -----------Dr. Cr. Particulars To Balance b/d:(opening balance of Assets) Cash in hand Sundry debtors at branch Petty cash at branch Stock at branch at invoice price Furniture at branch Imprest cash at branch Prepaid expenses Prepaid fire insurance Plant at branch Any other asset but opening To Goods sent to Branch by the H.O. at invoice price To Cash/Bank account:(Branch expenses) Rent, rates and taxes Insurance Petty expenses Salaries to staff Printing and stationery Miscellaneous expenses Sundry expenses Any other expenses in addition to above To Cash or Bank Account (Plant/furniture purchased during the year by the branch in the question)* To Stock Reserve Account (Loading on Closing Stock) To Balance c/d:(closing balance of Liabilities) Sundry creditors Outstanding expenses like salaries, wages etc. Amount Particulars By Balance b/d:(opening balance of liabilities) Sundry creditors Outstanding expenses like salaries, wages etc. By Cash Account:Cash sales Cash received or collection from debtors or customers. By Goods sent to Head office (goods returned by the branch to the head office) By Stock Reserve Account (Loading on Opening stock) By Goods sent to branch Account (Loading on Net goods sent to branch) By Balance c/d:(Closing balance of Assets) Cash in hand Sundry debtors at branch Petty cash at branch Stock at branch Furniture at branch Imprest cash at branch Prepaid expenses Prepaid fire insurance Plant at branch Any other asset but closing Amount
*****
*****
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To Branch Profit (If there is profit) By Branch Loss (If there is loss)
Memorandum Branch Debtors Account Dr. Cr. Particulars To Balance b/d:(opening balance of sundry debtors) (*Balancing figure) To Credit sales Amount Particulars By bad-debts written off By discount allowed to debtors or customers By rebate allowed to customers By sales returns or return inwards or goods returned by the customers to the branch By cash account (cash received from debtors) By Balance c/d:(closing balance of sundry debtors) (*Balancing figure)
Note: - This account is prepared only at the time of ascertaining Debtors opening or closing or cash received from debtors
Amount
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PROFORMA OF A DEFICIENCY ACCOUNT AS PER LIST H Particulars 1. Capital invested in the business (Excess of assets over liabilities) 1. Net loss business. Particulars arising from carrying on
2. Net profit earned during carrying on the 2. Loss on Book-debts as per list F:business Doubtful debts--------Like 1999----- Bad-debts-----------2000------ Etc. 3. Withdrawals or drawings made by the 3. Interest on capital (Amount x No. of proprietor. years) or 4. Loss incurred during disposal/realization Amount of capital x Rate of interest x no. of of assets:years Stock-in-trade Furniture 4. Income from other sources or profit from Bills receivable other sources like: Buildings Private life policies Machinery Profit from completing pending Shares/securities transactions Freehold property Excess of private assets over private Fixtures and fittings liabilities Motor cycle Creditors not to rank for dividend. Any other asset whether mortgaged Life policy not charged. or not. Furniture seized from the wife of the 5. Loss through speculation debtor. Surplus from estates. 6. Bills discounted and expected to be Claim not expected to rank. dishonored or Profit on realization of assets like on Bills likely to be dishonored. furniture,
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Investments, on every asset. Surplus from household properties. per Statement
7. Loss on bills discounted. 8. Private liability of loan taken from friends of and relatives. 9. liability for outstanding expenses which are yet to be recorded in the books of account like salaries, wages, compensation payable, rent, rates and taxes, etc. 10. Loss of capital in the firm. 11. Creditors overdraft. of the firm like Bank
1. Deficiency as Affairs ****
Gross Liabilit ies
Liabilities
STATEMENT OF AFFAIRS Expect Assets ed to Rank
Bookvalue
Estimate d to produce
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*** *** (a)Unsecured as per List A
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creditors
***
(Dont show amount here of fully secured creditors)
(a) Properties as per List E:Cash in hand Cash at bank Cash at bankers Cash deposited with solicitor for costs of petition Stock-in-trade Plant and machinery Furnitures, fixtures, and fittings Trade fixtures, fittings, utensils, etc. Life policies Household furniture Investments Jewellery Shares in the company in the form investment Land and building Profit from completing pending transactions Motor vehicles Surplus from estates Total
(b)Creditors fully secured as per List B = ****

Less:- Estimated value of securities = **** Surplus (if any) = **** Less:- Amount thereof carried to List C = **** Balance thereof contra = ***
***
(c) Creditors partly secured as per List C = **** ***

Less:- Estimated value of securities = **** Balance if any will be shown in the expected to rank column*
**** (Dont show amount here of preferential creditors)
(d) Creditors for rent, rates, taxes, salaries and wages etc., payable in full as per List D (Preferential Creditors) = ***
Less:- Deducted as per contra= ###
****
****
(b) Book-debts as per list F:Good = *** Doubtful = *** Bad = ***
**** ****
**** **** ****
Total Estimated to produce
(c) Bill of Exchange as per List G:Estimated to produce

Surplus from securities in the hands of fully secured creditors (as per contra) Less:- Deduct creditors for preferential rent, rates, taxes, wages, etc. (as per contra)###
****
**** **** ****
(d) Deficiency as per List H TOTAL TOTAL TOTAL TOTAL

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ACIT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

dependent upon his employer.

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ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

Or Individual Research Studies

ACADEMY OF COMMERCE & IT

He is a good organizer as well as a good manager .

ENTREPRENEURIAL MOTIVATION Qno1. What is Motivation

Qno2. Motivation Theories

2. McClellands Acquired Needs Theory

ACADEMY OF COMMERCE & IT

Qno3. Nature of Motivation

Qno4. Types of Motivation

ENTREPRENEURIAL MOBLITY Qno1. Factors influencing/affecting entrepreneurial mobility

ACADEMY OF COMMERCE & IT

Qno2. Write a short note on Occupational Mobility

PAPER B OWNERSHIP STRUCTURES Sole Proprietorship

Q. Characteristics of sole-trade business

ACADEMY OF COMMERCE & IT

Q. Advantages of sole-trade organization

Q. Demerits of sole-trade organization

Q. Characteristic features of Partnership

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

Q. Procedure for registration

CO-OPERATIVE ORGANIZATION Q. Meaning of Cooperative Organizations

ACADEMY OF COMMERCE & IT

Q. Features of Cooperative Organizations

Q. Advantages of Cooperative Organizations

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

ACADEMY OF COMMERCE & IT

(c) Creditors partly secured as per List C = ** *