Category: Commerce Notes PPT

Any organisation, whether public or private, issues different types of shares to stay afloat and to distribute management responsibilities, including raising fresh funds for the enterprise. For the latter purpose, equity shares are issued.

 

What are Equity Shares?

Also known as ordinary shares, equity shares are issued to the general public at a pre-declared face value. It acts as the biggest means of investment for a company as the more shares are sold, the more investments pour in. In return, the shareholders become co-owners of the organisation in question.

 

Equity shares give the shareholder the right to vote at the Annual General Meetings of the company. This right has to be exercised carefully as important business decisions are taken depending on them.

 

Equity Shares Capital’s Characteristics

• The dividend rate on equity capital is determined by the availability of surplus capital. The dividend rate on the equity capital, on the other hand, is not fixed.

The Goals of Financial Management

Financial management’s main goal is to maximise shareholder wealth by increasing the current market value of equity shares.

Increase the Value of the Company’s Stock

• The basic goal of financial management, commonly known as “the wealth maximisation principle,” is to achieve this.

Obtaining Adequate Money at the Lowest Possible Cost

Optimal Use of Resources Obtained

Ensure the Security of your Investment

To Establish a Stable Capital Structure

To ensure a sound and equitable capital composition, an appropriate balance of equity and debt should be maintained.

Few Pointers of Equity Shares

The following are some of the most essential aspects of such shares:

• Anyone holding these shares has the right to vote and select the management and the Board of Directors. These are usually done once a year during an AGM or at Extraordinary General Meetings, the latter type being very rare.

Types of Equity Shares

Several types of equity shares exist. The most common ones are as follows:

• Authorised Share Capital: It is the maximum capital amount any company can issue. The ceiling on these shares can be changed at times depending on profitability, several shares issues, rules and regulations and other criteria.

• Rights Share: These are additional shares issued to existing shareholders as a gift or recognition of their input. A company may, however, decide not to offer any rights share entirely.

Advantages of Equity Shares

The following are the major merits of equity shares:

Drawbacks of Equity Shares

There exist the following drawbacks or disadvantages of equity shares.

• Equity shareholders tend to be very scattered or may own an insignificant percentage of a company’s total share capital. Under these situations, it may be difficult for shareholders to exercise any control over an organisation’s benefits. 

Equity Shares vs Preference Shares

Most companies also issue preference shares that carry some extra benefits including the right to claim a portion of the dividend first. Here are the key differences.

 

 

These should complete the basics of equity shares for students of commerce. For further knowledge on equity shares, students can look up related topics on . Students can also participate in ’s advanced online classes for better and more effective learning.

 

Stock Exchanges In India

India’s stock exchanges are listed below. The following is a list of Indian stock exchanges that operate:

The Bombay Stock Exchange (BSE)

The Bombay Stock Exchange, or BSE, was founded in 1875 and is not just India’s but also Asia’s oldest stock exchange. It is India’s largest stock exchange, with headquarters in Mumbai, Maharashtra. BSE’s market capitalization was $2.8 trillion in February 2021.

National Stock Exchange (NSE)

The National Stock Exchange, often known as the NSE, was founded in 1992. It is India’s first stock exchange to provide investors with a decentralised electronic trading platform. According to the most recent figures, the NSE’s market capitalization was $2.27 trillion. NSE, like BSE, is headquartered in Mumbai, Maharashtra.

Calcutta Stock Exchange (CSE) 

The Calcutta Stock Exchange, often known as the CSE, was founded in 1908. Its headquarters are in Kolkata, West Bengal. The CSE has been asked to leave by the Securities and Exchange Board of India (SEBI). However, the Calcutta High Court is now hearing the case.

India International Exchange (India INX)

India International Exchange (India INX) is a stock exchange based in India that was established in 2017. It was the first international stock exchange in India. It is a subsidiary of BSE and is based in Gujarat International Finance Tec-City.

The Metropolitan Stock Exchange 

MSE (Metropolitan Stock Exchange) was established in 2008. The MSE is a contemporary clearinghouse that was established to handle the clearing and settlement of contracts involving a variety of asset types. Its headquarters are in Mumbai, Maharashtra.

Conclusion

The general public is granted equity shares with a pre-determined face value. They offer shareholders the ability to vote at the company’s Annual General Meetings. It is a company’s most important source of investment since the more shares it sells, the more money it receives.

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An agreement prohibiting someone from engaging in a trade, practising a legal profession, or engaging in any type of business is expressly void. A person’s constitutional rights are violated by such an arrangement.

A valid contract must follow certain requirements and one of the most important requirements is that the contracts must not be void. Let’s start by explaining what a void contract is. Section 10 of the Indian Contract Act defines a void contract as ‘a contact that cannot be enforced by law.’ Any contract that is not legally enforceable is a void contract. 

There is, however, a difference between void contracts and void agreements. A void agreement is void ab-initio that means it is void from the start but a void contract is valid at the time of entering into a contract but becomes void or non-enforceable subsequently.

There are several types of void agreements and some of them are expressly declared void agreements. Such agreements are considered void by law. Expressively void agreements are considered harmful to the society as they are deemed to be against the public policy. Such agreements are expressly declared void under section 26-28 of the Indian Contract Act.

Agreements in Restraint of Trade – Section 27

Section 27 of the Act makes agreements that obstruct commerce unenforceable. In other words, any agreement that forbids a person from starting or continuing a business or profession in exchange for monetary compensation is null and void. As a result, a trade constraint agreement is defined as any agreement that forbids a person from conducting business in the manner or location of his choosing, based on an agreement with another party in which the other party benefits from him giving up his trade or profession.

Agreements that Prevent a Person(s) From 

Such agreements are deemed expressly void agreements as they are against the constitutional right of an individual to practice a trade of his choice. An agreement where a person agrees to not pursue a trade or profession for consideration is also deemed expressly void. All agreements in restraint of trade are void pro tanto but they are void agreements and not invalid agreements. This means that it is legal to enter into such agreements but they will not be enforceable by law if one or all the parties fail to fulfil the agreement

Case Law

The plaintiff and defendant in Madhub Chander v. Raj Coomar, (1874) 14 Beng LR 76, had a similar business in the same Calcutta neighbourhood. The plaintiff and the defendant agreed that if the defendant shuts down his business in that area, he will pay him a particular sum. The plaintiff shut down his business in that area, but the defendant refused to pay the debt. He was sued by the plaintiff. Because it is a case of complete restraint of commerce, the court ruled that the agreement between the two parties is void and unenforceable.

 

Exceptions for this Section

However, there are two exceptions to this law:

• Sale of Goodwill- If a person sells his goodwill along with the business, then the buyer can restrain the seller from practising the same business within local limits. Such an agreement will be deemed valid and it is an agreement not expressly declared void.

• Sale of Partnership- A partner exiting a partnership firm can enter into a restraint of trade agreement with the firm. It is an agreement not expressly declared void and will be considered valid. An agreement between the partners of a firm to not carry out a trade of their own, similar to the trade of the firm, is also a valid agreement. 

Agreement in Restraint of Legal Proceedings – Section 28

Any agreement between the two parties that forbids one or both of them from bringing the contract to court if the other fails to comply is null and void. Any agreement that precludes or inhibits an aggrieved party from seeking redress in a relevant court or tribunal in the event of a breach of contract is null and unenforceable, as per Section 28 of the Indian Contract Act. Any agreement that extinguishes a party’s rights or free either party from liability is null and void, according to the law.

Agreements that prevent a party from enforcing his legal rights under an agreement through the legal process in a court of law or through arbitration are expressly declared void agreements.

In short, all agreements are void, if:

• They render it invalid, by agreement, for a party to approach a relevant court or tribunal if the parties’ rights have been violated.

• Limit the time within which the aggrieved party can approach such a court or tribunal.

• Make a party immune from liability by agreement.

 

Case Law Free PDF 

The Supreme Court held in Food Corporation of India v. New India Assurance Co.Ltd. that it was clear from the agreement that it did not contain any clause that was found to be contrary to Section 28 of the Contract Act because it did not impose any restriction on filing a suit within six months of the date of contract termination as claimed by the insurance company, but what was agreed was that after the contract was terminated, the parties would file a suit with the court.

 

Exceptions

• Saving of a contract to refer to an arbitration dispute that may arise

• Saving of a contract to refer to questions that have already arisen

• Saving of a bank or financial institution’s guarantee agreement

Agreements that are in Restraint of Marriage – Section 26

Under section 26 of the Indian Contract Act, all agreements in restraint of marriage are deemed to be expressly void agreements, unless they involve a minor. Entering into an agreement that prevents party/parties from getting married or restraining marriage is not enforceable by law and hence it is expressly void. The provision aims at protecting the right of every individual to enter into a marital relationship. This provision however does not apply to agreements that involve minors. 

If an adult agrees to not enter into marriage in lieu of consideration, it is an agreement expressly declared void. 

Example: A agrees with B, stating that B will not marry C. Such an agreement will be deemed void.

A agrees to not marry B if C agrees to pay him a certain amount. Such an agreement is considered expressly void.

Case Law: Shrawan Kumar vs Nirmala

In this case, the plaintiff contended that the defendant had promised to marry him, but married someone else instead. He asked for an injunction of her marriage with the other person. The case was decided against the plaintiff as the agreement was considered void.

The amount of capital that an owner has brought to the business, plus which he has collected in the credits when all is mixed is called business finance. The amount of capital that a company holds, whether it is from owner funds or borrowed funds, is included in business finance. How to do the planning, how to raise, how to issue, how to manage it, business finance is an umbrella term for all these things. So business finance is a branch of business studies where we monitor both cash flow, inflow and outflow, of the money. 

Nature and Significance of Business Finance

Why business requires finance-

i. There is a requirement of fixed assets to run a business such as the furniture, machinery, etc. Money is needed to buy that asset, this requirement is met through our business finance and the small expenses which are incurred in business meetings or in all other things, there is also a need for money, which is fulfilled through our business finance.

ii. When your production process is long, like if you are making a product that is taking you 1 to 2 months to produce, then you will need a lot of things during that time. If you do not have the money to make this product, then you cannot buy that raw material, due to which you will not be able to manufacture the product. Money is the most important aspect to manufacture products and this money comes through our business finance only.

iii. If you want to open a new branch of a business or you have to improve the infrastructure of your existing business or get new machinery in the building, then money plays a vital role in these purchases. Your company has a requirement of money for growth and expansion and that requirement is fulfilled with business finance.

Benefits of Adequate Finance

•  The firm can adopt the latest technology and innovative method of production.

•  The firm can make use of its business opportunities.

•  The firm can face competition more strongly.

•  The firm can replace its Assets and machinery whenever it required or necessary.

• The firm can face recession and depression periods of the trade cycle more strongly.

 Equity Shares –

Equity shares do not carry any special rights or preferential rights. A person holding equity shares is called an equity holder. Equity holders do not have any special rights at the time of dividend and at the time of repayment. The last right is of the equity shareholders’. If they are in loss then they get nothing and if there is a profit then they get paid whatever is left after everyone gets paid. They do not have any fixed rate of return but these are primary risk barrels plus whatever profit they make is also the highest.

Features

i. Primary Risk Barrel- In these cases, companies lose, then the first loser to bear is the equity shareholder. Equity shares never get returns at the time of loss, they have to take a loss.

ii. Claim over residual income- Residual means leftover income. The income that remains after giving everyone’s share, is called residual income. The claim over residential income means when a small amount of income is left after giving it to everyone, the money goes to the equity shareholders.

iii. The basis for loans- Equity share capital is the basis on which loans can be raised to control equity shareholders.

iv. Control-Equity shareholders manage the affairs of the company. They are actively participating in important decisions, in important meetings, plus they also have the power to cast their votes. This voting can also be done in the decision of the company.

v. Higher profit-Equity shareholders hold the highest profit at the time of profit and there is no limit to their rate of return. Whichever company gets a lot of profit, they get a good return which is not fixed.

vi. Primitive rights- Whenever the company shares new equity for the general public or the shareholders, the equity is held by the existing equity holders first. Equity Shareholders get primitive rights.

Advantages 

i. Permanent capital- there is no fixed commitment to return the money for the payment of a fixed rate of dividend.

ii. No charge- on fixed assets, a company is not required to mortgage its assets.

iii. Credit standing- a company with more equity share capital enjoys hiring credit standings.

iv. Huge funds- people from on income groups can invest in equity share capital.

Disadvantages

i. Risk of fluctuating returns- at the time of adversity equity shareholders suffer loss and get no return.

ii. Inflexibility- equity share capital cannot be returned even when it is lying idle.

iii. Legal formalities- a company has to complete too many legal formalities before the issue of equity shares to the general public.

iv. Issues depend on market condition- equity shares are risky security and these are demanded during the boom period only during recession and people have hesitated to invest in equity share capital.

Preference Shares –

Preference shares are those which get more preference than equity shares, they get more imports in time of dividend and repayment of investment amount during winding up.

Features

i. Fixed-rate of dividend- preference shareholders get a fixed rate of dividends before payment to equity shareholders.

ii. No security- companies do not offer any security against preference share.

iii. Voting rights- the preference shareholder does not get voting rights under general conditions.

iv. Hybrid security- like equity share, preference share get dividend only when the company is earning profit and like debentures, preference share gets a fixed rate of return.

Advantages

i. Helps to collect a large number of funds- preference shares attract more public due to the fixed rate of return.

ii. No fixed liabilities- during the lost period there is no fixed liability to pay dividends as in the case of loans on borrowings.

iii. No interference- with preference share in capital structure the equity shareholder retains exclusive control over the company.

iv. No charge on assets- preference shares are not issued against any security.

v. Trading on equity- in years of prosperity and more profit equity shareholder in joy high rate of earning.

Disadvantages

i. Fluctuating and low return- the preference shareholders get a return only when a company is earning profit.

ii. A dividend is not treated as an expense- the company pays the income for and income tax on the income which is distributed to preference shareholders.

iii. No voting rights- they generally do not carry voting rights these shareholders have no say in management.

iv. Fixed obligations- during the time of low profit also a company has to pay a fixed rate of dividend to its preference shareholders.

A formal organization is a social system formed by clearly laid down rules, set goals, and that function relies on the division of labour with a clearly defined hierarchy of power.

In Line and Staff organization, a manager is responsible to establish the goals and directions that are to be fulfilled by the staff and other workers. A line-staff organizational structure made an effort to offer large and complex  organizations more flexibility without giving up managerial authority.

Process of Organization

The process of organization involves the following steps.

1. Determination and classification of the activities of the firm

2. Categorizing the activities into workable departments

3. Allotment of authorities and responsibilities on the departmental executives for managing the assigned tasks.

4. Developing relationships amidst superior and subordinate, within the department or unit

5. Preparing policies for proper coordination between the superior and subordinate and creating specific lines of supervision.

There are two main categories of organisation, (i) Formal Organisation & (ii) Informal Organisation.Formal organisation is an organisation structure where authorities and responsibilities are clearly defined. It has a defined delegation of authority and roles and responsibilities for the members. Formal organisation structure is created by the management with the motive of attaining the organisational goals.

There are several types of formal organisation based on their structure, which are as follows:

Characteristics of Formal Organizations

The following are the characteristics of formal organizations.

1. Allocation of labor and related hierarchy of power and authority

2. Documented authorities, policies, practices, and goals

3. Individuals act together to achieve a shared goal, not individually

4. A specific chain of command is followed by communication

5. A specified system for replacing members within the organization

6. This type of organizational structure is not dependent on the existence or participation of specific individuals.

Line and Staff Organization

In a centralized structure, decisions are made by the managers and the decisions are flown downward through the enterprise. However, as an organization grows in scope, complexity increases, they need to be flexible with the control as centrally applied. The principle of line-staff organization introduces this flexibility into hierarchical lines of authority, in a try to maintain a unified command structure.

Line groups are engaged in tasks that focus on the technical core of the firm. They are involved in achieving the primary objective of the enterprise. Line groups have the final decision-making authority in relation to the technical organizational purposes.

Staff groups are in tasks that provide support to the line groups. Their work is like that of advisory (legal), service (human resource), or control (the accounting) groups. Staff groups support those who are engaged in the central productive activity of the enterprise. They back up their work. Staff groups help the organization in analyzing, researching, counseling, monitoring, and evaluating activities.

Level 1 is MANAGING DIRECTOR who has three subordinates 

1. Production Manager

It has further two subordinates

2. Marketing Manager 

It has further two subordinates

3. Finance Manager

It has further two subordinates

• Accountant

• Chief Accountant

Difference between Line and Staff Organization

The difference between the line and staff is better than we draft in points.

Difference 1. Purpose

Line Organization’s purpose is to work directly toward the organisational goals, while staff advises, assists, and back to the line group to work towards the set goals. This is the main difference.

Difference 2. Authority

Yet another important difference is authority. Line authority is considered or visualised as the formal authority which is created by the organisational hierarchy. Staff groups do not get any such recognition.

Difference 3. Personality of Individuals

The final point of difference between the line and staff in some organisations arises from the personality possessed by such individuals who are involved in these groups. Line managers are usually the senior people, and tend to be partially educated, and have risen through the hierarchy of the organisational staff, while specialists are the younger ones, to be much educated, and to have been hired directly into the upper-level staff positions because of their expertise in their field. This difference might be a major source of line-staff conflict.

Advantages of Line and Staff Organization

This organisation has the following advantages:

1. Specialization

Line and staff organisation introduces a specialization in a very systematic manner. Specialized knowledge and hierarchy roles are combined here.

2. Better Discipline

The unity of command is maintained by the line managers hence in this type of organisation discipline is maintained. The workers get command from the line personnel and are accountable directly to them. This creates a better moral and discipline among the employees.

3. Balanced and Prompt Decisions

The managers have the advantage of expert advice from the staff managers while taking important decisions. Also the staff are too consulted to investigate and advise, and thus dual advice creates balanced and prompt decisions.

4. Growth and Expansion

The line and staff organisation, both are well suited for the growth and expansion.

5. Development of Employees

This organisation provides great scope for advancement of career to the talented employees.

6. Lesser Burden on Line Officers

With the assistance of staff officers, the burden of the line officers is greatly reduced. The specialist’s advice helps the line officers in deciding their work of specialization.

7. Quick Actions

The line officers have sufficient time to work. When there is a need for certain decisions, they will be able to give time and decide the things as part of their decisions are also handled by the staff managers.

Factors Affecting Organizational Structure

1. Size

Size is one of the important factors which affect an organizational structure of the company. Smaller or home-based businesses normally do not require a large structure, and the business owner is usually responsible for all the tasks.

2. Life Cycle

The life cycle of the company plays an essential role in the development of its organizational structure. Companies generally develop an organizational structure to define their vision, mission and goals in the growth phase.

3. Strategy

Strategy considerably affects the development of an organizational structure of the company. High-growth companies typically have smaller organizational structures so that they can react to changes in the business environment faster than other companies.

4. Business Environment

The external business environment is an essential aspect to be taken into account during the development of an organizational structure of the company. Dynamic environments with constantly changing consumer behavior are generally more turbulent than stable environments.

Features of Line and Staff Organization

1. Two types of staff:

1. Staff Assistants

2. Staff Supervisor

2. Line and Staff Organization is a new form of line organization. It is a more complex structure than line concern.

3. Division of work and also specialization takes place in line and staff organization.

4. The whole organization is divided into functional areas to which staff specialists are attached.

5. Efficiency can be achieved through the features of specialization by the staff managers.

6. There are two lines of authority which flow at one time in an organization:

1. Line Authority

2. Staff Authority

7. Authority to command remains with the line executive and staff officers serves only as counsellors.

Line and Staff Organizational Structure

Line and staff organization is a modified version of the line organization. This is more complex than the line organization. According to this structure, the administrative organization which is specialized and performs supportive activities are attached to the line of command done by appointing staff supervisors and staff specialists who are attached to the line authority. The power of command anyway remains with the line executives and staff guides, advises and counsels the line executives.

Line and Staff Organisation structure is quite modern which is taken up by the corporate sector to provide flexibility as well as accountability.

It might sound exaggerated but, without money, the world will stop moving! It will of course come to a great halt. This is the dominant effect of money. Money is considered as the life blood of not only the business, but the world economy at large. The function of money thus goes out without saying. Nevertheless, we will talk about the functions of money for more detailed knowledge in this section.

After we discuss the functions of money in this content, it will compel us in a thought process of a life without money! Let us start with the vitality notes of money.

Money is What Money does – What is Money?

Money acts as a legal tender for any type of exchange and transactions. Buyers can purchase goods or a service from the seller in exchange for money. Presence of money in the economic market makes the transactions taking place easier as in the other scenario; one will have to use barter for the transactions. 

According to a barter system, to purchase a good or service from a seller, the buyer has to offer them an equal value of good or commodity. Besides, the transaction will take place only when a seller is interested in the offered product. Thereby, the probability for this event occurring is quite low and hence completing transactions would be difficult. 

Money eliminates such conflicts from occurring and helps in the exchange method. This makes the transaction process convenient and widely accepted by all on an international platform. 

Need Money? – Visualize the Scenario

Let’s take a scenario to understand this better. 

Scenario: Rohan has 50 litres of Milk supply obtained from his cattle. Now, he can either utilise the whole amount or may store it for future use. But, milk is a perishable item, and hence they won’t be able to store it for a longer time and use it themselves. 

In such a case, they can exchange this surplus milk in exchange for a good or service of equal value. However, the task of finding a buyer who has a product that piques Rohan’s interest as well can be tedious. In this case, having money for the exchange of milk is the best solution to his problem as he can use the acquired money anytime for purchasing an equal value good or service that he needs. 

 

What are the Functions of Money?

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Functions of money can be broadly categorized into two parts – 

1. Primary functions of money 

Primary functions can be further divided into two subcategories. 

1. Money as an Exchange Medium:

One of the primary functions of money is as a medium of exchange as it can be used for any or all transactions wherein goods or services are purchased or sold. Therefore, one can buy or sell products in exchange for money. 

2. A measure of Value:

Money can be treated as the parameter of measuring the value of a product or service. To put it simply, the value of every product or service can be expressed in monetary form. The money also follows a standard and is accepted worldwide even though the currency does differ from one country to another. 

For instance, the value of each product is determined in monetary terms. The value of 1 egg is supposedly Rs.5 in India, and the value of a pack of bread is around Rs.15. So, money is a measure of the value of all products (and services) and is the amount that is required to be paid/received while transacting. Therefore, it is one of the essential four functions of money. 

Subsequently, these primary and secondary functions of money are some important uses of money in any economic market. 

2. Secondary Functions of Money 

The secondary function can be further segregated into three parts as mentioned below – 

Being crucial functions of money, it can be stored or conserved. One can store it for future purposes, and it is economical as well as convenient to store money. 

Money can be used conveniently for deferred payments which need to be paid by individuals. It has become the standard for payments made presently or in the future. For instance, if someone borrows a certain amount from another individual, they need to repay the amount with interest. With money in purview, it is convenient to pay the interest or make deferred payments. 

This has led to the popularity of lending and borrowing transactions and has contributed a big part to the formation of financial institutions. 

The utility of money stretches to the transfer of value as it can be used to purchase goods not only within the country but beyond the domestic line. One can sell or purchase goods in the domestic or international market with money as a standard tool. 

Therefore, the availability of money in the market has contributed to stability and liquidity in the market and helps form essential functions of money markets. 

Test your Knowledge 

Q1. Choose the appropriate function of money which supports savings accounts in a financial institution. 

1. An exchange medium 

2. Store of value 

3. The standard for deferred payments 

4. A measure of value 

Answer: b 

Q2. Choose an option that cannot be a desirable characteristic of money. 

1. Easily recognized 

2. Easily duplicated 

3. Uniform 

4. Portable 

Answer: b 

Q3. Why is barter inconvenient?

1. Limitation of resources 

2. Gold is bulky and is inconvenient for everyday transactions 

3. It needs double coincidence of demands 

4. A huge amount of money is needed

Answer: c 

Q4. Choose the primary function of money 

1. The savings function 

2. An exchange medium 

3. The unit of account function 

4. The store of the value function 

Answer: b 

Q5. Choose the secondary functions of money 

1. Measure of value 

2. An exchange medium 

3. Store of value 

4. None of the above 

Answer: c

Did you know?

• The first coins were minted or made approximately 2,500 years ago.

• The first usage of paper money was in China over 1,000 years ago.

• The benefit of metal coins is that they are portable and also durable or long-lasting.

• The actual value of a British pound is equal to a pound (which is in weight) of silver.

Students can learn the significance that money has in the economic market and its various functions in detail to get an insight into the same. Further, they can learn the intricacies of the concept precisely and accurately by visiting ’s website. 

The support system for small scale industries in India is exceptionally comprehensive. Most of these companies belong to the Central Government, while the rest fall under the state governments. The small scale industry sector output is known to contribute at least 40% of the gross industrial value-added, 45% of the total exports from India (both direct and indirect exports). It is the second-largest employer of human resources right after agriculture. The development of small business units and the future has thus been assigned an essential role in India’s national plans.

Government Assistance to Small Scale Industries

The overall contribution of small industries and businesses to the Indian economy is clearly boundless. They not only build wealth and employment but are also a huge source of social development. In reality, so great is their significance that there is a special ministry dedicated to micro, small and medium industries. Here, the whole concept of government assistance to small industries is explained in a comprehensive way.

Government Assistance to Small Industries and Small Business Units

The Indian government has been continuously supporting and enhancing small unit sectors in multiple ways. India is focusing on rural industries and cottage sectors. In layman’s language, a small business is a project or venture that needs a small budget or is directed by a small group of people. 

Both the central and state government have been highlighting self-employment opportunities in rural industries by offering assistance and support in financing in regards to loans, training in regards to programs, raw materials, infrastructure and technology.

The central aim of the government assistance to small industries and small business units is to use the local workforce and locally available resources that are later transformed into action by agencies, provincial departments and corporations, etc.

Government Assistance to Small Industries

In order to support, promote and protect small businesses and help them become self-supporting, numerous protective and promotional measures have been introduced by the Indian government. 

National Bank for Agriculture and Rural Development (NABARD): It was introduced by the government in 1982 to offer action and promote the rural industries in the best possible way. The plan has adopted multi-purpose strategies to promote rural business in India. It supports small industries, rural industries and artisans, cottage industries and agriculture. Also, it elevates training, counselling, along with development programmes for rural entrepreneurs.

A Rural Small Business Development Centre (RSBDC): It is a government centre sponsored by NABARD for micro, small and medium businesses which are set up by world organizations. The major aim of RSBDC is to work for financially and socially disadvantaged people and groups. The plan does numerous programmes on skill upgradation, awareness, entrepreneurship, training and counselling. Such programmes encourage several unemployed youth and young women to learn various trades and introduce them to other good advantages from it.

Direct Industries Centres (DICs): It was established in May 1978 to offer a ‘focal point’ for the development of small industries. The primary objective to set up these centres was to evolve modern small scale units and offer institutional set up for traditional cottage sectors. The DICs schemes were supposed to provide for all the services and support at pre-investment and post-investment stages like assistance on raw materials, marketing, credit, training and a lot more. These centres act as an intermediate party among the developmental blocs and well-specialized institutions and small scale enterprises.

National Small Industries Corporation (NSIC): It was established in 1995 by the government to expand and support small businesses emphasizing on commercial factors. The vital functions of NSIC are as follows: 

• Supply imported goods and machines on the hire purchase agreement. 

• Evolving small businesses by importing their items. 

• Procurement of supply imported indigenous raw materials. 

• Create awareness of technical upgradation. 

Also, a new scheme known as performance and credit rating for small units has been introduced by NSIC. It ensures that the more their credit rating, the more their financial assistance for their investment and capital needs.

Small Industries Development Bank of India (SIDBI): It is a leading government bank to offer direct and indirect financial assistance and support under multiple schemes to meet all the credit needs of numerous small businesses. 

The National Commission for Enterprises in the Unorganized Sector (NCEUS): NCEUS was created in September 2004 by the government with the following goals:

• Strategies to boost the productivity of small industries in the informal sector. 

• Forming links between small sector and finance, raw materials, infrastructure, technology, etc.

• To build public and private partnerships for engagement in transmitting skills for the informal sector. 

• Offering microfinance for the informal sector. 

• Offering social security for the informal sector. 

• To introduce competition among small scale industries in a global environment. 

Rural and Women Entrepreneurship Development (RWED): It is a government based organization that focuses on increasing the business environment for women and offering support for women’s business approaches and initiatives. It also provides a manual for training in entrepreneurship and renders advisory services. 

Small Business Units and the Future

Today, the government of India also focuses more on the economic and industrial development of various areas in India like backward, tribal and hilly. There are committees established for government assistance to small industries and small business units. Moreover, small industries are adapting to the changing requirements of the market-driven economy. So, the government should explore new strategies that motivate partnership between small and large industries.