CHAPTER-3

CONCEPTUAL FRAMWORK

3.1 ENTREPRENUR

The word “entrepreneur” has been taken from the French language
where it cradled and originally mean to designate an organizer of musical or
other entertainments oxford English dictionary (1987) also defined and
entrepreneur in similar way as “the director or a manager of a public musical
institution once who ‘ger-up’ entertainment, especially musical performance”.
In the early 16th century, it was applied to those who were engaged in military
expeditions. It was extended to cover civil engineering activities such as
construction and fortification in the 17th century. It was only in the beginning
of the 18th century that the word was used to refer to economic aspects. In this
way, the evolution of the concept of entrepreneur is considered over more than
two centuries, since then the term, ‘entrepreneur’ is used in various ways and
various views. These views are broadly classified into three groups namely
risk taker, organized and innovator.

In a country like India, for a long time, urbanization centred on the

four metros namely Chennai, Delhi, Bombay and Calcutta. Subsequently,
when these cities started facing the pressures and challenges of urbanization, a
second set of metros got developed, which were typically the capitals of
various states; and second tier cities in the states where the major metros were
already located. Since metros seem to be the places where much of the socio-
economic development was happening, most people from the remaining parts
of the country started migrating to the urban areas with the hope that they
would earn their livelihood. This led to a lot of challenges in terms of
imbalance in the country, especially in India, where more than 70 percent of
the country resides in the villages. It created imbalance in terms of utilization
of natural resources, space constraints, over population, etc. this was also
because much of the development activity by the government and by the
private sector initially also happened around the cities. Poverty levels started
increasing in the rural areas because of which lot of development challenges
 were faced by local bodies, as they tried to improve life in remote areas of the
country. Despite the odds, the government in its capacity is showing renewed
focus on rural development.

3.2 CONCEPT OF ENTREPRENEURSHIP

The term “entrepreneurship” is often used synonymously with the

“entrepreneur”. Though they are two sides of the same coin, conceptually they
are different. The entrepreneur is essentially a business leader and the
functions performed by him are entrepreneurship. Arthur H. Cole has stated
that 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. The following table can be given to distinguish the entrepreneur
from entrepreneurship. Entrepreneur and entrepreneurship are both have
different concept. The difference between these two concepts is briefly
mentioned below.
Entrepreneur refers to a person who is visualizer, creator, organiser,
Innovator, Technician, Initiator, Decision maker, Planner, Leader, Motivator,
Programmer, Risk taker, communicator, and Administrator, whereas
Entrepreneurship refers to the process which has vision and it is created by the
entrepreneur. From this information it is clear that entrepreneurship defined as
process of action an entrepreneur undertakes to establish his enterprise. And it
is a creative and innovative response to the environment. It is thus a cycle of
actions to furthern the interests of the entrepreneur.
From the classical economists to the modern theoreticians, the topic of
the entrepreneur has been analysed and several observations and
pronouncements have been put forward. Both pure economists and social
theorists are included in the economists who have advanced their opinion on
the entrepreneur and his activity. At present these is no consensus, as to what
constitutes the essential activity which makes the entrepreneur a crucial figure
in the economic game. Prof. James K. Omps is of the view that limited natural
resources, food shortages, over population, energy shortages and lack of
technology are the factors that are being cited for today’s problems. But he
opines that the critical factor whose shortage is bothering the present day
 nations is the “dire shortage of the appropriate economic innovator and
implementer ..... the Entreprenologists.”

3.3 DEFINITION

 Higgins has defined entrepreneurship as

“The function of seeking investment and production opportunity,
organizing and enterprise to undertake a new production process raising
capital hiring labour, arranging for the supply of raw materials and selecting
top manager for the day to day operation of the enterprise.”

 Oxford English Dictionary (1993) defined entrepreneur as

“One who undertakes an enterprise especially a contractor acting as
intermediary between labour and capitals”
 Joseph A. Schumpeter defines entrepreneur as
“One who introduces something new in the economy”.

 Peter Drucker has aptly observed that

“Innovation in the specific tool of entrepreneur that means by which
they change as an opportunity for a different business or a different services.”

 According to Drucker the following condition are to be fulfilled in case of

an entrepreneur.
(a) Innovation at work; it requires knowledge and ingenuity. It makes great
demands on diligence, persistence and commitment.
(b) To succeed innovation must build on their strengths.
(c) Innovation always has to be close to market focused on the market.
Entrepreneur is not influenced by a single factor but is the outcome of the
interaction and combination of varies environmental factors. By changing the
environmental society can be recreated. It is the “desire to make money “that
derives one to start an industry rather than the amount of money one owns.
Encouraging governmental policies and social recognition influence a person
to become an entrepreneur.
3.4 INDIAN ENTREPRENEURSHIP

India was fabulously wealthy country till it was brought under the
foreign yoke. The Indian monarchs enriched keen interest in internal and
international Trade. A number of Indian goods were exported. Chief among
the exported items were the textile products of ancient India. Indian Silk and
muslin, which were of the best quality and of the finest texture with skilful
artistic designs, were very much in demand in west Asian Western countries.
There is historical evidence to attest the use of Indian Muslin in Wrapping
Egyptian mummies.
Assyria and Bahylon imported Indian cotton fabrics. Imported Indian
cotton fabrics. Precious stones, metal ornaments, Jewels and fragrant essences
made in India enjoyed a worldwide market during the first phase of Indian
Entrepreneurship.
Besides these items of export, the spices and perfumes of India enjoyed
a great demand in the global market in ancient times. The Arabian merchants
were the main dealers in the goods mentioned above during the colonial phase
of Indian Entrepreneurship. Moreover, pearls of the ancient Pandya kingdom
and ivory from the ancient Chera Kingdom and were coveted Indian goods
even in the ancient Roman Empire.
During the 16th century the Indian Entrepreneurial ventures extended
over vast regions of central Asia and Africa. During the Mohal period, the
Coramental coast and Bengal gained entrepreneurial significance. The
discovery of the sea route to India further increased the scope of Indian
Entrepreneurship during the time before the British established themselves as
rulers in India.
Jaipur, Bengal, Madurai and Masulipatnam were important
entrepreneurial centres in ancient India. Ahmedabad, Aurangabad, Dacca,
Lohore, Surat and Hyderbad became entrepreneurial centres during the mohal
period. Dharwar, Goa, Mysore, Tanjore, Madurai, Nellore and Visakapatnam
became entrepreneurial centres during the periods of the Marathas and
Nayaks.
3.5 ENTREPRENEURIAL GROWTH IN INDIA

From the historical point of view the entrepreneurial panorama of India

can classified into three broad categories according to time. The first in Indian
Entrepreneurial before the arrival of the British and the establishment of the
British and rule in India. This can be called the precolonization period of
entrepreneurship. The second is the phase of India Entrepreneurship. The third
is the period of Indian Entrepreneurship after Indian attained independence in
1947. This can be called the Post – Independent Indian Entrepreneurship.

The historical perspective, through the three phases presents in a

nutshell the fluctuating fortunes of Indian Entrepreneurship. Tracing
historically the evolution of Indian Entrepreneurship is not simply an attempt
to represent the historical perspective, but to perceive a continuity of
relationship through the three phases.

3.6 FUNCTIONS OF ENTREPRENEUR

Most of the definitions of entrepreneur are stated in terms of his

function. But the fact is that the entrepreneurial task is not homogenous. It is
not carried out in the same way in different circumstances. The functions of
entrepreneur would change from time to time and place to place and so is the
concept of entrepreneur. It differs depending upon the state and stage of
economic development in a country.

Entrepreneurs have to perform multiple functions in an

underdeveloped economy, where virtually any kind of labour is
entrepreneurial.

“Entrepreneur creates or expands time-binding input – transforming

entities (firms) . The primary functions of entrepreneur are the investments of
time, capital and energy in economically significant pursuits. The emphasis is
on decision making in its various aspects. J.B.Says’ definition associates
entrepreneur with the functions of coordination, organisation and supervision.
According to him ‘an entrepreneur is one who combines the land of one, the
labour of another and the capital of yet another and produces a product. From
 the sales amount of the product in the market, he pays interest on capital, rent
on land and wages to labourers and the remainder is his/her profit.

In general, the functions of an entrepreneur can be clarified into three

(i) Innovation

(ii) Risk bearing and

(iii) Organisation and management.

I. Innovation
Schumpeter’s view of the basic function of an entrepreneur was to
innovate. “Everyone is an entrepreneur only when he actually comes out with
a new combination and loses that character as soon as he has built up his
business, when he settles down to running it as other people run their
business.”
Innovation implies doing new things. It includes introduction of new
products, creation of new markets, application of new process of production,
discovery of new and better sources of raw material and developing a new and
better forms of industrial organisation.

II. Risk Taking

Risk taking or uncertainty bearing implies assumptions viz., the
responsibility for loss that many occur due to unforeseen contingencies of the
future. Economists like Cantillion, J.B. Say and others stretched risk taking as
the special function of an entrepreneur. Business is a game of skill wherein
risks and rewards both are great.
An entrepreneur is an especially talented and motivated person who
undertakes the risks of business.

III. Organisation and Management

Organisation implies bringing together the various factors of
production. The purpose is to allocate the productive resources in order to
minimise losses and to reduce costs in production. Alfred Marshall recognised
organisation and management of the enterprise as the major functions of an
 entrepreneur. Organisation and management includes planning of an
enterprise, co-ordination, administration and control and routine type of
supervision.

IV. Identifying Opportunities and Prospects

Entrepreneurship searches those activities of value that have an
economic and social contribution. It identifies new opportunities in the socio-
economic arena which have got profitable prospects therefore, entrepreneurs
are called searchers of hopes into blind spots and this function enormously
indebted our society to entrepreneurship.

V. Decision Making
Entrepreneurship is a new initiative therefore; it has to decide
multivariate issues that affect new ventures. Entrepreneurship has to decide
upon equipment to be used quality, price and its variation, deficiency, capital
structure, the feasibility of the project, organizational structure, philosophy of
management, etc. that will guide, run and prosper the new venture or distinct
attempt for entrepreneurship.

VI. Technology Transfer and Adaptation

Entrepreneurship throughout the world brings invented technology

from different comers of the world and makes it appropriate by making
required adjustments for local conditions. This function of entrepreneurship
involves identifying appropriate technology with market potentials and adapts
it into the local environment
3.7 DEVELOPMENT OF ENTREPRENEURSHIP THEORY
The following are the various terms which were used in different period of
time.

S.no Period Definition

Men engaged in leading military
1 16th Century expeditions were referred to as
entrepreneurs.
2 17th Century Person bearing risks for profit.
French economists had given special
meaning to entrepreneur and
entrepreneurship, with differences arising
3 18th Century
largely from the characteristics of the
sector of the economy that chiefly
attracted their attention.
Actor and person in change of large-scale
4 Middle Age
production projects.
Person bearing risks is different from one
5 1725, Richard Cantillon
supplying capital.
Separated profits from the capital to the
6 1803, Jean Baptiste
person who is known as entrepreneurs.
Distinguished between those who
supplied funds and received interest and
7 1876, Francis Walker
those who received profit from
managerial capacities.
1934, Joseph Entrepreneur is an innovator and develops
8
Schumpeter untried technology.
Entrepreneur is an energetic, moderate,
9 1961, David Mc celland
risk taker.
10 1964, Peter Prueker Entrepreneur Maximize opportunities.
Entrepreneurs’ takes initiative, organizes
11 1975, Albert Shapero some social and economic mechanisms
and accepts risks of failure.
Entrepreneur seen differently be
12 1980, Karl vesper economists, psychologist, burn persons
and politicians.
Intrapreneur is an entrepreneur within an
13 1983, Gifford Pinchot
already established organization.
Entrepreneurship is the process of
creating something different with value
by devoting the necessary time and
14 1985, Robert His rich author, assuming the accompanying
Financial, psychological and social risks,
and receiving the resulting rewards of
monetary and personal satisfaction.
3.8 ENTREPRENEURIAL PROCESS

Charge in the socio-economic environment leads to charges in the

every aspects of life in the country.

Starting of new venture...

Entrepreneurship which leads to exploitation of new opportunities

through new combinations of its available resources.

Co-coordinating the varied activities to achieve the entrepreneurial

goal.

3.9 ENVIRONMENT FOR ENTREPRENEURSHIP

The entrepreneurs are those who find business opportunities in the

available environment. There are so may factor which may influence an
individual to choose entrepreneurship.

Socio Economic
condition

Supporting Facility Family Backgrond

Personal Skills Financial Ability

ENVIRONMENT FOR
ENTREPRENEURSHIP

Achivement &
Motivation Political Stability

Government
Cast and Religion
Policy
3.10 CHARACTERISTICS OF ENTREPRENEUR

Successful entrepreneurs have the following Characteristics.

1. Innovation 6. Gap filling

2. Function of high achievement 7. Status withdrawal
3. Organization building 8. Entrepreneurial Supply
4. Group level activities 9. Entrepreneurship
5. Managerial skills 10. Leadership skills

3.11 QUALITIES OF ENTREPRENEUR

As per Robert D. Hisrich the following qualities are identified to be successful
entrepreneur.

Motivator An entrepreneur is the one who forms and motivates others

for achievement of individual growth and career
development
Self- Which is the back of all human activities therefore as an
confidence entrepreneur one should have belief in oneself and the
ability to achieve the goals.
Long-term An entrepreneur must be committed to the work or project
involvement: that he has selected with time of long years.
Hard Hard working plays a vital role in achieving the already set
working: goals.
Tractability: An entrepreneur should be creative and tactable enough to
solve the uncertainties.
Initiative: An entrepreneur should be initiative in finding of new
methods of production in the existing methods.
Goal setter: An entrepreneur should be able to set challenging but
realistic goals.

3.12 CLASSIFICATION AND TYPES OF ENTREPRENEURS

Entrepreneurs is a person who discovers new ideas and opportunities,
brings together funds to establish a business organizes and manage its
operations in order to provide goods and services to the society.
There are various ways by which entrepreneur is classified. Different
authorities have classified entrepreneurs differently at different times. The
most popular classification has been given by Clearance Dank off on the basis
of his study of the American Agriculture.

 Innovative entrepreneur: is one who is able to fore see potentiality

viable and profitable opportunities through innovation.
  An adoptive or Imitative entrepreneur is one who is ready to adapt the
successful innovation already inaugurated by innovating entrepreneurs. In
other words an imitative entrepreneur does not innovate anything by
himself but imitate the technology and methods of others.
 Fabin entrepreneur; is one who adopts a great caution as scepticism in
introducing any change in the business.
 Drone entrepreneurs; is one who blindly follows the traditional methods
of production even when it causes loss to him.

3.13 RURAL ENTRPRENUR

In country like India, which is agriculture based rural economy; it

becomes important for the country, and its policy-makers to focus on
improving the lives of farmers and other people dependent on rural economy.
Agriculture based development of rural markets is also important from the fact
that some of the fundamental industries like food, minerals, handicrafts, etc.
which provide a living for the people in the rural parts of the country have to
be taken care of. Else, it could create more social problems. Failure to do so
will have even the beneficiaries of the services, like the people living in urban
areas start seeing tremendous pressure, since they are also dependent on food
and other agriculture based produce from rural markets
For instance, with the reducing number of people involved in farming
and a number of farmers facing lot of difficulties in terms of cash issues,
liquidation issues and changing climate, today some of the essential items are
being imported from other countries. This increases the cost of the basic items.
This also at times increases the rate of inflation.
The shifting of rural folk from agriculture to manufacturing and other
service activities must not lead to migration of people to urban areas. Hence,
industries like handlooms, handicrafts, khadhi village industries, sericulture
etc. should be established in the rural area itself.
Moreover, rural entrepreneurs establish a link between agricultural
allied activities such as poultry, sheep breeding, piggery end dairy
development and agro based industries like sugarcane processing, crushing
processing of food grains, fruits and vegetables. There is much scope in
 agricultural market for storage and distribution of chemical fertilizers,
improved seeds, agricultural implements, pesticides, insecticides and
consumer articles.

3.14 DEFINATION OF RURAL ENTREPRENURSHIP

 Definition: “Rural entrepreneurship refers to the development of a new

enterprise which pioneers new products and services creates a new market
for its offerings or uses advanced technology, in the rural area.
In simple terms, the entrepreneurship which springs up in non-urban areas
is termed as rural entrepreneurship. This leads to the establishment of
industrial units in rural areas”.

 Definition: “Rural Entrepreneurship defines the entrepreneurship whose

origin lies in the rural areas whereas has a lot of potentials to undertake
various businesses, industry, agriculture and play a significant role in the
economic growth of the nation”.

 Definition: Rural entrepreneurship is a term that relates to the

establishment of new business units and industries in rural areas. It involves
carrying out entrepreneurship activities in the rural economy which results
in the overall development of the nation. 

3.15 NEED OF RURAL ENTREPRENEURSHIP

Rural entrepreneurship is gaining importance in today’s scenario. There are

various reasons why rural entrepreneurship is needed today

1. Majority resides in village

The very fact that a large portion of India’s population still resides in
village become important to promote local industry. Metro cities like
Bombay, Delhi, Calcutta and Chennai are already facing tremendous
problems on resources in terms of space, consumption, movement of
materials etc. if more and more people start moving towards these cities, it
is bound to create a mismatch.
2. Distorted distribution towards urbanization
While urbanization was a focus of the industrial revolution, it continues
even today in the information age. While there is lot of emphasis on
promoting technology and knowledge driven companies, it should not be
assumed that this is the only solution for development. If basic industries
are not promoted, it might lead to lot of other basic problems like lack of
food, lack of infrastructure, lack of health and hygiene, etc.

While urbanization provides facilities of basic infrastructure, hygiene and

health in major cities, it is very important to start developing the same in
rural areas, so that this skewed distribution of urbanization can be reduced
and people do not feel the strong need to move to a city to make a living.

3. Promotion of indigenous skills or talent

Almost every country has some speciality in every location. For

example, India is famous for its handlooms, silk saris, various types of rice
like basmati, etc. there are certain specialities in certain parts of the
country that needs to be identified and promoted. Else there are chances
that they could become extinct. When people are not able to earn a living
by practising their basic skills, they look for alternate ways of livelihood.
For example, there have been instances where artisans, who are capable of
making paintings and sculptures, have worked as masons and bar benders
in construction sites, since they were unable to find a way to sell their art/
unable to find people who could promote their art forms. So the only way
to make a living way by doing some rudimentary daily jobs, which
eventually erodes the possibility of seeing our indigenous art forms
flourish.

4. Helpful tool for social development

From a social reform perspective, it is very important that while

creating industries in tier 2 and tier 3 towns, the local establishments must
not be destroyed. For example, due to the emergence of TATA Steel plant
in remote places, a lot of people in the nearby villages are now able to
 provide education for their children. They also have access to basic health
care facilities and have hygienic places to stay. Creation of this enterprise
has been done carefully to provide better life to the people without making
them lose on their traditional skills and culture.
All these were possible, because the company was suited in that area,
realised the need for providing those facilities locally. As a result of this,
the nearby areas also started to sustain themselves. If these industries were
to be located closer to larger towns and people had to be moved away from
village to work at these units, then social development may not have
happened at the scale at which it was intended.

5. Creating employment opportunity

Rural entrepreneurship or start-ups in rural areas when promoted

rightly can create jobs at the local level. For example, starting BPOs or
high-tech companies in rural areas can be thought of as a feasible solution,
since there is low cost labour available for doing transaction processing.
One such example is entrepreneurship in the art sector and development of
indigenous products and promoting them. Arts and crafts in terms of
service or product around different forms of music, dance, painting, etc;
growing certain special types of grains, food items, flowers, honey, etc.,
can be identified and promoted as industries.

6. It protects essential industries

While all the credit is being given to industries like information

technology and infrastructure, which have provided employment for
thousands of people, it is very important to understand that we cannot rely
only on information and technology for our living. It is important that we
have enough access to basic industries like food, agriculture, etc. just
imagine a world where only engineering and technology companies exist,
only urban cities exist, the entire country is urbanized and there is no land
for growing rice or wheat. It is very scary thought indeed.
It is important that fundamental industries are protected and it is the
responsibility of the government to consciously ensure that the rural
 settings are not eroded because of the short-term benefits and lure of
urbanization.

3.16 PROBLEMS IN RURAL ENTREPRENEURSHIP

While we have established a good case in the previous section as to why we

need to have a concerted effort from multiple corners, government, NGO,
industries, etc., to promote and sustain rural entrepreneurship, the
implementation of the same is far from easy. Some of the key challenges that
could be faced en-route are detailed below;

a. Overriding of existing rural ecosystem

The biggest problem that can arise because of promotion of
entrepreneurship in rural areas is a tendency to carry the known technologies
or knowledge and in setting up industries, which could accidentally harm the
existing rural ecosystem. It takes a lot of effort for people to realise and
change their basic way of working, to identify what is indigenous at the local
area and promote that as a business. It is very easy for people to take what
they know and create industries.
One of the biggest problems of promoting rural entrepreneurship is the
infiltration of technology and engineering services into rural areas, rather than
entrepreneurs looking for opportunities available locally in the rural areas.
Aspect like starting of BPOs or IT companies setting up development units in
the rural areas may not be a great trend in the longsectors. Though this can be
short-term wealth creation mechanism for people in the rural sector, it cannot
be very viable solution from a sustainability point of view.

b. It could urbanise the rural area too quickly

While urbanization is needed for improving infrastructure, providing
education, health, hygiene, etc., it is important not to do the same in quick and
rushed manner. Urbanization rate should tie closely with the rate at which the
rural society is willing to adopt and embrace the same. Education of the rural
population on the good and bad of urbanization must be done prior to forcing
the act upon them.
 It is important for policy makers to understand that allowing people to decide
what they want to do in promoting industry without fore thought is not the
right course of action. If this happens, then the tendency to modernize with a
short-term focus could create huge cost on the government and society at
large.
c. The challenge between industrialization and agriculture
The inclination to modernise agriculture does not seem to be happening at
a pace that is aggressive enough. In most cases, the challenge is primarily
from the fact that it is quicker to start an industry than venture into agriculture.
Because of the number of external factors which are beyond the control of the
farmer, tendency to take on agriculture is steadily dropping. This is not a very
healthy sign. Encouraging rural entrepreneurship without focus at a very
grassroots level could lead to the problem where a lot more industries get
created in rural areas instead of revitalising the fundamental sectors like
agriculture.
d. Financial problems to start the new venture
Entrepreneurs. Lack of finance available to rural entrepreneurs is one of
the biggest problems which rural entrepreneur is bearing now days especially
due to global recession. Major difficulties faced by rural entrepreneurs include
low level of purchasing power of rural consumer so sales volume is
insufficient, lack of finance to start business, reduced profits due to
competition, pricing of goods and services, Financial statements are difficult
to be maintained by rural entrepreneur, stringent tax laws, lack of guarantees
for raising up of loans, difficulty in raising capital through equity, dependence
on small money lenders for loans for which they charge discriminating interest
rates and huge rent and property cost

e. Marketing problems to increase sales volume.

Rural entrepreneurs face severe completion from large sized organizations
and urban entrepreneurs. They incur high cost of production due to high input
cost. Major problems faced by marketers are the problem of standardization
and competition from large scale units. They face the problem in fixing the
standards and sticking to them. Competition from large scale units also creates
 difficulty for the survival of new ventures. New ventures have limited
financial resources and hence cannot afford to spend more on sales promotion.
Most of the rural entrepreneurs faced the problem of middlemen, commission
agents. Middlemen exploit rural entrepreneurs. The rural entrepreneurs are
heavily dependent on middlemen for marketing of their products who pocket
large amount of profit. Storage facilities and poor means of transport are other
marketing problems in rural areas. In most of the villages, farmers store the
produce in open space, in bags or earthier vessels etc.

f. Legal Formalities and obstacles

Rural entrepreneurs find it extremely difficult in complying with
various legal formalities in obtaining licenses due to illiteracy and ignorance.

g. Procurement Of Raw Materials

Procurement of raw materials is really a tough task for rural
entrepreneur. They may end up with poor quality raw materials, may also face
the problem of storage and warehousing.

h. Lack Of Technical Knowledge

Rural entrepreneurs suffer a severe problem of lack of technical
knowledge. Lack of training facilities and extension services crate a hurdle for
the development of rural entrepreneurship.
i. Poor Quality of Products
Another important problem is growth of rural entrepreneurship is the
inferior quality of products produced due to lack of availability of standard
tools and equipment and poor quality of raw materials

j. Lake Of Knowledge Of I.T

Information technology is not very common in rural areas. Entrepreneurs rely
on internal linkages that encourage the flow of goods, services, information
and ideas. The intensity of family and personal relationships in rural
communities can sometime be helpful but they may also present obstacles to
 effective business relationships. Business deals may receive less than rigorous
objectivity and intercommunity rivalries may reduce the scope for regional
cooperation. Decision making process and lines of authority are mostly
blurred by local politics in rural areas

3.17 ROLE PLAYED BY ENTREPRENURS IN RURAL DEVELOPMENT

Entrepreneurial activity and new firm formation are unquestionably

considered engines of economic growth and innovation (Baumol, 1990;
Murphy, Shleifer and Vishny, 1991). As such, they are among the ultimate
determinants of the large regional differences in economic performance. The
importance of new firm formation for growth has been recognized since
Schumpeter (1934). According to the Global Entrepreneurship Monitor Report
(2000), about 70 percent of an area’s economic performance is dependent
upon how entrepreneurial the area’s economy is. Entrepreneurial orientation in
rural areas is based on stimulating local entrepreneurial talent and subsequent
growth of indigenous companies. This in turn would create jobs. and add
economic value to a region, and at the same time it will keep scarce resources
within the community.
According to Petrin (1992), to accelerate economic development in
rural areas, it is necessary to build up the critical mass of first generation
entrepreneurs. Studies conducted by Food and Agricultural Organization the
Latin American and Caribbean region have indicated that rural enterprises can
be an important modernizing agent for small agriculture. Governments have
supported this process by creating incentives for agro-industry to invest in
such regions. This has not only been in developing countries, but it has also
been a clear policy of the European Union which channels a large part of the
total common budget to develop the backward and poor regions of Europe.
Lyson (1995) echoes the prospects of small-enterprise framework as a
possible rural development strategy for economically disadvantaged
communities and provides this description of the nature of small-scale flexibly
specialized firms: “First, these businesses would provide products for local
consumption that are not readily available in the mass market. Second, small-
scale technically sophisticated enterprises would be able to fill the niche
 markets in the national economy that are too small for mass producers. Third,
small, craft-based, flexibly specialized enterprises can alter production quickly
to exploit changing market conditions.”
According to a study conducted in the United States it has been found
that rural poverty has become as intense as that found in the inner cities, and
has stubbornly resisted a variety of attempts at mitigation through economic
development policies. The latest strategy for addressing this problem is the
encouragement of emerging “homegrown” enterprises in rural communities.
The expectation is that these new ventures a) will provide jobs or at least self-
employment; b) will remain in the areas where they were spawned as they
grow; c) and will export their goods and services outside the community,
attracting much-needed income. (Lyons, 2002). Gavian, et al (2002), in a
study on the importance of small and medium enterprises development in rural
employment in Egypt, have suggested that small and medium enterprises are
traditionally thought of as well poised to respond to increased demand by
creating jobs.
It is important to stress here that rural entrepreneurship in its substance
does not differ from entrepreneurship in urban areas. Entrepreneurship in rural
areas is finding a unique blend of resources, either inside or outside of
agriculture. The economic goals of an entrepreneur and the social goals of
rural development are more strongly interlinked than in urban areas. For this
reason entrepreneurship in rural areas is usually community based, has strong
extended family linkages and a relatively large impact on a rural community.

3.18 FACTORS RESPONSIBLE FOR EMERGING OF ENTRPRENURS

Entrepreneurship is essential for the development of any economy.
Countries which have flourished attribute their rise to the growth of
entrepreneurship. Therefore, governments and people all over the world want
to encourage this concept. This article lists down the factors which contribute
to the growth of entrepreneurship and therefore to the growth of the economy
of any given area.
Political Factors

Political factors play a huge role in the development of entrepreneurship in a

given geographical area. This is because politicians decide the type of market
that is in place. The market could be capitalistic, communist or some countries
have adopted a mixed economy. Each of these three markets has very different
implications for the way in which entrepreneurs are required to function.
Capitalism requires breakthrough innovation whereas communism requires
entrepreneurs to be well connected with the political class. Therefore, it has
been observed that the more capitalistic any country is, the more
entrepreneurship flourishes in the region.

Legal Factors

Entrepreneurs are dependent upon law for a wide variety of factors. The
strength and fairness of the legal system of a nation affect the quality of
entrepreneurship to a large extent. This is because entrepreneurs require a
wide variety of legal services to function. For instance, entrepreneurs would
require the courts to enforce the contracts that were entered to between parties.
In many countries such contracts are not enforceable and therefore the
resultant risk prohibits the development of entrepreneurship. Then again, the
entrepreneurs are dependent on the courts for the protection of their property
rights. Also, many advanced countries have noticed that the provision of
declaring bankruptcy has been positively associated with the development of
entrepreneurship. Entrepreneurs do fail a few times before they find the right
innovation that leads to their success. The United States is amongst the
countries with the highest rate of entrepreneurial development and it is also
known to have one of the most advanced bankruptcy laws! Even business
legends like Henry Ford had declared bankruptcy in their early days.

Taxation

The government can also influence a high degree of control on the market
through provisions of taxation. Some amount of taxation is necessary for the
government to maintain the legal and administrative systems in place for the
entire economy. However, a lot of times governments resort to excessive
taxation. They usually adopt the policy of beggaring the rich and giving it off
to the poor. This goes against the basic tenets of entrepreneurship which
believes in survival of the fittest. Therefore, countries where tax regimes are
restrictive find an outflow of entrepreneurs. In short, entrepreneurs want to set
up shop in places where there is minimal interference from the government.

Availability of Capital

The degree to which the capital markets of a nation are developed also play a
huge role in the development of entrepreneurship in a given region.
Entrepreneurs require capital to start risky ventures and also require instant
capital to scale up the business quickly if the idea is found to be successful.
Therefore, countries which have a well-developed system of providing capital
at every stage i.e. seed capital, venture capital, private equity and well
developed stock and bond markets experience a higher degree of economic
growth led by entrepreneurship.

Labor Markets

Labor is an important factor of production for almost any kind of product or

service. The fortunes of the entrepreneurs are therefore dependent on the
availability of skilled labor at reasonable prices. However, in many countries
labor has become unionized. They demand higher wages from the
entrepreneurs and prohibit other workers from working at a lower price. This
creates an upward surge in the costs required to produce and as such has a
negative effect on entrepreneurship.

With the advent of globalization, entrepreneurs have witnessed the freedom to

move their operations to countries where labor markets are more favorable to
them. This is the reason why countries like China, India and Bangladesh have
witnessed a huge rise in entrepreneurial activity in their countries.

Raw Materials

Just like labor, raw material consisting of natural resources is also an essential
product required for any industry. In some countries this raw material is
available through the market by paying a fair price. However, in some
 countries seller cartels gain complete control over these natural resources.
They sell the raw materials at inflated prices and therefore usurp most of the
profit that the entrepreneur can obtain. Therefore, countries where the supply
of raw material faces such issues witness depletion in the number of
entrepreneurial ventures over time.

Infrastructure

Lastly, there are some services which are required by almost every industry to
flourish. These services would include transport, electricity etc. Since these
services are so basic, they can be referred to as the infrastructure which is
required to develop any business. Therefore, if any country focuses on
increasing the efficiency of these services, they are likely to impact the
businesses of almost all entrepreneurs in the region. Therefore, countries
which have a well-developed infrastructure system witness high growth of
entrepreneurship and the opposite is also true.

Of course, the above list of factors is not exhaustive. Entrepreneurship is far

too complex a subject to capture in a few bullet points. However, the above
list does provide an indication towards the type of factors that can play an
important role.

3.19 GOVERNMENT POLICY AND SCHEMES

The development of rural entrepreneurship has become an important
aspect in the economic policy. The Government of India has continuously
assigned increasing importance and support for the promotion and growth of
rural entrepreneurship. In order to encourage more and more rural
manufacturing enterprises in the MSME sector, several schemes have been
formulated by the Ministry. The following are the important schemes available
for the rural Micro, Small and Medium manufacturing enterprises.

Central level Schemes:

 Prime Minister’s Employment Generation Programme (PMEGP)

 Prime Minister’s Employment Generation Programme (PMEGP) is a
credit linked subsidy scheme for setting up of new micro-enterprises and to
generate employment opportunities in rural areas of the country. The margin
money subsidy is 25 per cent for general category and 35 per cent for the
special categories such as SC/ ST/ OBC/ Minorities/Women, Ex-servicemen,
Physically handicapped, North Eastern Region, Hill and Border areas, etc.,
The maximum cost of the projects is Rs.25 lakh in the manufacturing sector.

 Performance and Credit Rating Scheme

The purpose of rating scheme is to provide a trusted third party

opinion on the capabilities and creditworthiness of Micro and Small
enterprises (MSEs), and also to create awareness amongst MSEs about the
strengths and weakness of their existing operations.

 Credit Guarantee Trust Fund for Micro & Small Enterprises

(CGTSME)

The Ministry of Micro, Small and Medium Enterprises, and Small

Industries Development Bank of India (SIDBI) have jointly established a
Trust named Credit Guarantee Fund Trust for Micro and Small Enterprises
(CGTMSE). The objective is to implement Credit Guarantee Scheme for
Micro and Small Enterprises. The corpus of CGTMSE has been contributed
by Government of India and SIDBI. 75 per cent of the loan amount to the
bank has been guaranteed by the Trust Fund.

 Entrepreneurship and Skill Development Programme

The assistance is provided to National level training institutions
operating under the Ministry of MSME, namely, NIMSME, KVIC, Coir
Board, Tool Rooms, NSIC & MGIRI in the form of capital grant for the
creation and strengthening of infrastructure, support for entrepreneurship
development and skill development training programmes. Assistance has
also been provided to those State level EDIs that enter into partnership
with NIMSME for capacity development and for undertaking studies and
research on MSME issues. The scheme also provides research grant upto
Rs 15 lakhs on MSME issues.
  Micro and Small Enterprises Cluster Development (MSE-CDP)
The Ministry of MSME has adopted cluster development approach to
enhance productivity and competitiveness as well as capacity building of
Micro and Small enterprises. The Scheme supports financial assistance for
the establishment of Common Facility Centres (CFCs) for testing, training
centres, R&D, Effluent Treatment, raw material depot, complementing
production processes etc.

State level Schemes

3.20 CRITICALL CHALLENGES AND CONSTRAINTS OF

ENTREPRENURS
Rural entrepreneurship has its own drawbacks. Policies such as
keeping of land in protection when there is already an over production and
pricing income are two of the greatest threads to rural entrepreneurship. Due
to the remote access and unavailability of knowledgeable labour, commercial
markets and managerial staff are hindered due to the remote locations. In order
to alleviate the problems of rural entrepreneurship, under the government
supported resources for these projects and select only the very best ideas that
directly benefit not only the community but also can compete on a global
scale. It is also vital for the success of the rural communities that the
development of each rural project remain in the hand of the local agencies
which in return cooperate with the government to oversee the leading factor
that can help develop the rural areas.

i. Distribution and logistics: Infrastructure contains to be a challenge in rural

India. Moreover, the lack of an efficient distribution network prevents
penetration of products/services into rural India.
ii. Payment collection: The majority of the rural population is still unbanked.
Clearly, non-cash collection becomes rather unlikely. Cash collection; on the
other hand, are messy and difficult to monitor.
 iii. Pricing: it is easier to collect in larger amounts as every instance of collection
and carrying of cash has associated cost. Disposable income, though, isn't
always high since the bulk of rural India is agriculture and income cycle in
agricultural are very erratic and not as predictable as in the case of us salaried
individuals.
iv. Scaling across geographies: India is the land of culture and tradition. The
contrast becomes that much starker in the case of rural India. Any model
where scalability involves scaling on-ground operations is bound to run into
myriad issues as we move from one state to the next. Add to that the greater
differences in consumer tastes and behaviour across geographies then in the
relatively more cosmopolitan urban population.
v. Developing inorganic scale: Developing synthetic scale through partnerships
typically results in larger overheads in the rural context. More importantly,
there are very few players who are strong on these counts across multiple
typically requires partnerships resulting in higher partner management
overheads.
vi. Social and cultural challenges: The cyber café model has not worked in
many parts of rural India due to socio-cultural issues. One of the reasons for
the failure of the kiosk model in Kuppam was the lack of usage by women
which was largely due to their discomfort in going to kiosks run by men.
vii. Growth of Mall culture: Because of the globalization and modern economy
encouraging the mall culture rather than the traditional shops. Another side
rural Indian people income is also increased, because of that these people also
attracted to mall culture.
viii. Poor Assistance & Power failure: These two are the major challenges faced
by the rural people. India is not a developed country, it is still developing
country. Moreover India, don't have a sufficient power and electricity
infrastructure facilities to satisfy the needs of their people. For filling the gap
between the demand and unavailability the government of India have been
committed to power cut to rural areas.
ix. Lack of technical knows how: Rural Indian people they don't have strong
technical educational knowledge. That is the reasons these people don't know
how to use latest Technology.
x. Infrastructure sickness: The rural India still suffering with lack
infrastructure facilities. But the same time government also not concentrates
for creating the rural infrastructure. This is the pathetic situation of rural India.
xi. Poor self- image of rural youth & inadequate motivation: Strong
motivation is the mahamantra for success of any activity. Particularly the rural
youth are suffering with poor self-image. This is killing the talents of the rural
youth. Cultural values: We can observe one thing here; in comparing to the
urban people the rural people have been committed to strong cultural values.
In this globalizes world the most traditional people are also fatly adopting the
foreign cultures and traditions. In fact the rural people don't easy to change the
cultural values.

3.21 CHALLENGES FACED BY THE RURAL ENTREPRENUE

Some of the major difficulties faced by rural entrepreneurs include a

low level of purchasing power of rural consumers so sales volume is
insufficient, reduced profits due to competition, lack of financial assistance,
and power failure are shown in Figure 2. Let us discuss in detail about
challenges faced by rural entrepreneurs or small scale businessmen are follows

 Family Challenges: One of the Most and critical challenges faced by business
seekers and promoters are convincing the family.  The first question that arises
is – Do you have a business idea or any thoughts on making money from a
business.
 Social Challenges: Family challenges are usually the top most challenges but
most of the time faced in the external environment is also social challenges
major factors in entrepreneurs mind.
 Technological Challenges: Educational strategies mostly inspiring graduates
technology-wise and gaps too much from the Job industry with online
entrepreneurship.
 Financial Challenges: Financial challenges are not only for entrepreneurs
also for any type of business holders, private or public sector are too and it is a
huge issue in India.
 Policy Challenges: All period is a lot of changes involved in policies to
change in the government or non-government sectors.
3.22 GOVERNMENT AND RURAL ENTREPRENEURSHIP

Promoting Entrepreneurship in rural sector can be spearheaded by the

government, since they are the ones with greater responsibility and reach.
Considering the size and scale of the rural market in India and in countries similar
to India, it may not be possible for any other body to spearhead such an initiative.
Promoting entrepreneurship in the rural sector rightly requires then some serious
championing from the government side. Some of the things that the government is
doing and can do better are creation of schemes, subsidies and grants for rural
entrepreneurship. Though not explicitly stated, promotion of agriculture based
industries are being given a positive push by the government. But it needs to be
made more explicit and aggressive. Some of the ways in which agri and non-agri
based village industries can be helped are: providing low cost inputs, low cost
electricity and subsidy; grants for utilization of technology; subsidies, rebates and
schemes where people can get aid for revitalising the fundamental industries, etc.
The government needs to relook at schemes and their implementation
mechanisms, especially with respect to industries in rural sectors. Some of the
problems faced by rural entrepreneurs are as follows:

a) Lack of finance is the lifeblood of the business. Most of the rural

entrepreneurs are mainly struggling to raise the finance for their businesses. Non
availability of adequate collateral security often mars the chances of rural youth in
obtaining adequate funds in time to set up their own venture. Due to this, the
entrepreneurs are forced to take credit from village money lenders who charge
exorbitant rates of interest.

b) Lack of knowledge there is a distinct lack of adequate knowledge of

entrepreneurial opportunities among the rural youth. The educated and trained
youths mostly leave for urban destinations in search of jobs.

c) Lack of technical know-how On account of the faulty education system

rural youth lack managerial, professional, technical know-how which is an
impediment in developing the spirit of enterprise, consequently not many people
come forward to establish self-employment units.
 d) Absence of enterprising skill Most of the rural people in India lack risk
bearing ability. Reluctant to involve oneself in business, inclination towards wage
employment, and lack of creative thinking are few reasons which have restricted
the growth of self-employment in rural area.

e) Lack of infrastructural facilities rural areas are characterized by poor

infrastructural facilities, roads, water, market, electricity, street lighting, road
transport, storage and communication etc. which hamper the smooth movement of
various industrial activities.

f) Adverse social, cultural and industrial environment Social evils, caste

systems, fatalism, religious superstitions, particularly in the country side, do not
allow development of adventurous spirit. Lack of skill and expertise in labourers,
their tendency to migrate to cities new entrepreneurs.

g) Lack of market information due to poor communication facility The

absence of effective communication and access to the right information makes it
difficult for rural entrepreneurs to understand market trends and policies followed
by the government on industrialization.

h) Non availability of skilled labours In rural areas, skilled labours cannot be

found easily by the entrepreneurs. Highly skilled personnel prefer to work in big
cities due to high salary than rural areas.

i) Low quality products nowadays, the consumers are more sensitive to the
quality of the products. But, rural entrepreneurs cannot produce quality products
due to poor quality of raw materials and lack of standardized tools and
equipment’s.

j) Fear to invest in the business rural entrepreneurs has low risk bearing
ability due to lack of financial resources and external support. So, they restrict to
invest in their businesses in rural areas.

k) Competition Rural entrepreneurs are facing tough competition from

urban entrepreneurs and larger scale organizations. They cannot compete with the
urban entrepreneurs due to lack of standardization and branding of the products.
 l) Middleman Rural entrepreneurs mainly depend on middlemen for
marketing their products. But they betrayed by offering low prices to their goods.

3.23 FACTORS AFFECTING ENTRY TO ENTREPRENRUSHIP

3.22.1 Push F-Full Factors

Different scholars have contributed to our understanding of the supply

of entrepreneurship (Hamilton and Harper 1994). Apart from the (perceived)
ability to become an entrepreneur, determined by factors such as human,
social and financial capital, individuals have to show a willingness to become
self-employed. Indeed, Ajzen’s (1991) theory of planned behaviour
distinguishes between an attitude towards the intended behaviour (i.e., self-
employment) and (perceived) behavioural control (i.e., whether people believe
they have it in them to become self-employed). As an important driver of
intended entrepreneurial behaviour, attitudes essentially capture the motivation
to engage in entrepreneurial behaviour. Gilad and Levine (1986) distinguish
between pull and push “hypotheses” of entrepreneurial motivation. The
distinction between pull and push factors is also implicitly present in the
Model of the Entrepreneurial Event (Shapero and Sokol 1982), where it is
argued that the act of starting up a business is dependent upon a displacement
(or important change) occurring in the life of an individual. This displacement
can be negative, in the form of the loss of a job or a divorce, but it may also be
positive, such as an inheritance.Footnote1 Individual characteristics (including
sociocultural factors and economic, social and human capital) determine how
individuals experience, value and perceive ‘disruptive’ events (Shapero and
Sokol 1982) or encountered opportunities as well as how they react to them. It
is not only an individual’s objective situation but also his/her perception that
makes him/her decide on an entrepreneurial career. In reaction to a certain
‘disruptive’ event, some may start a business, whereas others go in a different
direction.
Pull motivations come in different forms. Shane et al. (1991) find
evidence for four motivational constructs: recognition, independence, learning
and roles (the last of which are driven by the wish to continue the family
tradition, to have more influence in the community, and to follow a role
model). Carter et al. (2003) distinguish between six categories of motivation:
innovation, independence, recognition, roles, financial success and self-
realization. Innovative firms are central to economic development and the
evolution of industries, and entrepreneurs differ in their likelihood to engage
in process and/or product innovation (Agarwal and Shah 2014). Indeed, many
firm-level sources determine innovative behavior (Pellegrino et al. 2012). We
know that necessity entrepreneurs are less likely to be involved in product
innovation than opportunity entrepreneurs (Darnihamedani and Hessels 2016).
Furthermore, larger firms are more likely to pursue Schumpeterian
opportunities—focused on discontinuous change—while small ventures are
more likely to pursue Kirznerian opportunities that are less focused on
innovation (De Jong and Marsili 2015).Footnote2
Finally, there are categorizations of pull motivations in studies by
Birley and Westhead (1994) and Scheinberg and MacMillan (1988), each
providing evidence of a multitude of pull motivations, including the need for
approval, independence, personal development, improved welfare and wealth,
and following role models.

In terms of push motivations, Oxenfeldt (1943) was one of the first to

argue that unemployed individuals or individuals with low prospects for wage
employment may become self-employed to earn a living. This can be traced
back to Knight’s (1921) view that individuals choose between three activities:
unemployment, self-employment and wage employment. The effect of
unemployment—i.e., lowering the opportunity costs of self-employment,
thereby driving individuals to start their own business—is often referred to as
the push effect of unemployment. Evidence of this unemployment push or
“escape from unemployment” effect has been provided in several studies
(Storey and Jones 1987; Audretsch and Vivarelli 1996; Foti and
Vivarelli 1994; Ritsilä and Tervo 2002; Gilad and Levine 1986; Thurik et
al. 2008; Vivarelli 2013; Rocha et al. 2015). In studies explaining the decision
to become self-employed, push motivation is usually connected to
unemployment; however, there are other factors that may push individuals into
the direction of new venture creation, such as family pressure to transfer the
business to the new generation (Giacomin et al. 2011) or job dissatisfaction
 (Hisrich and Brush 1986; Brockhaus 1980; Cromie and Hayes 1991).
Sarasvathy (2004) proposes different types of necessity entrepreneurs,
including individuals who are fired from their jobs; individuals who decide to
leave wage employment because their boss does not want to commercialize
their ideas or inventions; and individuals who are “unhireable”, for example,
due to a lack of educational or language skills (immigrant entrepreneurs) or
criminal backgrounds.

3.22.2 Motivational Factors influence the rural entrepreneur

1. Desire to do something new.

2. Become independent.

3. Achieve what one wants to have in life.

4. Be recognized for one’s contribution.

5. One’s educational background.

6. One’s occupational background and experience in the relevant field.

3.22.3 Development Factors influence the rural entrepreneurship

3.24 ENTREPRENURSHIP AND ECONOMICAL DEVELOPMENT

Economic development essentially means a process of upward change
where by the per capita income of a country increases over a long
period of time.

The economic history of the presently developed countries like

America, Germany, and Japan leads to support the fact that the
economy is an effect for which entrepreneurship is the cause. The
crucial role played by the entrepreneurs in the development of the
western countries has made the people of under-developed countries
too much conscious of the significance of entrepreneurship for
economic development.

Now people have begun to realise that for achieving the goal of
economic development, it is necessary to increase entrepreneurship
both qualitatively and quantitatively in the country. It is only active and
enthusiastic entrepreneurs who fully explore the potentialities of the
country’s available resources land, tech., capital, material etc.
The role of entrepreneurship in economic development varies from
economy to economy depending upon its material resources, industrial
climate and the responsiveness of the political system to the
entrepreneurial function. The entrepreneurs contribute more in
favourable opportunity conditions.
1. In underdeveloped/developing regions, due to lack of funds and
skilled labour, the atmosphere is less conducive for innovative
entrepreneurs.
2. Under the conditions of paucity of funds and the problem of imperfect
market, the entrepreneurs are bound to launch their enterprises on a
small scale. Also initiator entrepreneurs are preferred in such regions.
Thus, initiation of innovations introduced in developed regions on a
massive scale brings about rapid economic-development in
underdeveloped/developing regions.
3. Further India aims at decentralized industrial structure to reduce
regional imbalances in levels of economic development.
4. Underdeveloped and developing country facing the problem of
Unemployment this problems can be overcome by creating the
entrepreneurship environment in the county. Hence, we can say
that entrepreneurship create the employment in the country.
5.  County by creating entrepreneurship environment.
6. Standard of living is depends upon Income level of the people
when with the help of entrepreneurship Income level is improved
then it leads to the Improvement in standard of living
7. Backward and forward linkages
8. Creator of wealth (securities, issues etc.).
3.25 CHAPTER SUMMARY

India lives in its villages, nearly 73 per cent of the total population live in
rural areas, where agriculture and allied activities are the main stay of their
lives. The economic development of India largely depends on the development
of rural areas and the standard of living of its rural mass. Rural entrepreneur is
one of the most important inputs in the economic development of a country
and of regions within the country. Rural entrepreneur uses the scarce resources
in the most efficient manner thereby increasing profits and decreasing costs.
Due to lack of education, majority of rural people are unaware of
technological development, marketing etc. Shortage of finance and raw
materials are main problems face by rural entrepreneurs. Most of the rural
entrepreneurs face peculiar problems like illiteracy, fear of risk, lack of
training and experience, limited purchasing power and competition from urban
entrepreneurs. Therefore, Promotion of rural entrepreneurship is a key to
develop rural areas and backward towns.

Meaning and Definition ***