Rural Entrepreneurship in India

RURAL ENTREPRENEURSHIP IN INDIA

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1. INTRODUCTION TO RURAL ENTREPRENEURSHIP ENTREPRENEUR - “Entrepreneurs” are people who create and grow enterprises. “Entrepreneurship” is the process through which entrepreneurs create and grow enterprises. “Entrepreneurship development” refers to the infrastructure of public and private policies and practices that foster and support entrepreneurship. ENTREPRENEURSHIP -

The concept of entrepreneurship has a wide range of meanings. On the one extreme an entrepreneur is a person of very high aptitude who pioneers change, possessing characteristics found in only a very small fraction of the population. On the other extreme of definitions, anyone who wants to work for himself or herself is considered to be an entrepreneur. The word entrepreneur originates from the French word, entreprendre, which means "to undertake." In a business context, it means to start a business. The Merriam-Webster Dictionary presents the definition of an entrepreneur as one who organizes, manages, and assumes the risks of a business or enterprise. WHAT IS RURAL ENTREPRENEURSHIP? The problem is essentially lop-sided development which is development of one area at the cost of development of some other place, with concomitant associated problems of under development. For instance, we have seen unemployment or underemployment in the villages that has led to influx of rural population to the cities. What is needed is to create a situation so that the migration from rural areas to urban areas comes down. Migration per se is not always undesirable but it should be the minimum as far as employment is concerned. Rather the situation should be such that people should find it worthwhile to shift themselves from towns and cities to rural areas because of realization of better opportunities there. In other words, migration from rural areas should not only get checked but overpopulated towns and cities should also get decongested. The question is, is it really possible? If it is so, ways can always be found out. One is by forcibly stopping villagers from settling in the slums of towns and cities, making use of all powers to clear the slums so the villagers are forced to go back. But such practices have not achieved the desired results in the past. Apart from causing suffering to the poor people and adding to the expenditure for the Government, social tensions and economic hardships created by the government officials and their staff in every demolition of slums is not desirable from a sane government. Moreover, when a slum is demolished people do not move out of urban locality. They only relocate to a nearby place because they are entrenched in the economy of the town or city. Though governments have tried out various schemes for generating incomes in the rural areas such government initiatives have not stopped people from moving out of villages to cities. This is because such government initiatives are not on their own capable of enabling people to earn adequately and ameliorate their conditions. There has to be some committed enterprising individual or a group of people


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who should be capable of making use of the government policies and schemes for the betterment of rural people. Some individuals who happen to be local leaders and NGOs and who are committed to the cause of the rural people have been catalytic agents for development. Though their efforts need to be recognized yet much more needs to be done to reverse the direction of movement of people, i.e. to attract people to the rural areas. It means not only stopping the outflow of rural people but also attracting them back from the towns and cities where they had migrated. This is possible when young people consider rural areas as places of opportunities. Despite all the inadequacies in rural areas one should assess their strengths and build on them to make rural areas places of opportunities. This is much to do with the way one sees the reality of the rural areas. The way a survivor or a job seeker would see things would be certainly different from those who would like to do something worthwhile and are ready to go through a difficult path to achieve their goals. It isn't that there is a dearth of people with such mindset. But with time they change their minds and join the bandwagon of job seekers due to various compulsions. Enabling them to think positively, creatively and Entrepreneurship purposefully is utmost for the development of rural areas. Young people with such perspective and with the help of rightly channelized efforts would usher in an era of rural entrepreneurship. In this country successful rural entrepreneurs would solve many of the chronic problems within a short time. To promote entrepreneurs who would take to rural entrepreneurship in utmost earnestness and sincerity is to ensure rural development. Such enterprising people who prefer rural entrepreneurship may or may not themselves belong to rural areas. Entrepreneurs taking to rural entrepreneurship should not only set up enterprises in rural areas but should be also using rural produce as raw material and employing rural people in their production processes. Rural entrepreneurship is, in essence, that entrepreneurship which ensures value addition to rural resources in rural areas engaging largely rural human resources. In other words, this means that finished products are produced in rural areas out of resources obtained in rural areas by largely rural people. The entrepreneur may or may not be of rural origin. The entrepreneurs may be from anywhere, but their enterprises have to be located in a rural area, using mainly local resources both material as well as human. Also, the enterprises have to be located in a rural area though it need not be actually using 100% local material and human resources. Some amount of material and some people may be from urban cities. But certainly large portion of material used has to be locally produced and an appreciable number of people engaged in the production of finished goods should be people based or living in rural areas. Even a unit set up by the government or a large company in a rural area could promote rural entrepreneurship depending on how much opportunities it throws up for entrepreneurs to use local resources, to fulfill the demands of such large units and the multiplier effect such large units create. Any large unit coming up in rural areas more or less does have an impact in activating the surrounding economy for entrepreneurs to take advantage of. This is precisely the reason why it is recommended to shift industries from urban centers to neighboring rural areas. Such shifting initially may be a difficult proposition but in the long run beneficial in many ways. Moreover, it would throw up lots of opportunities in the rural areas and result in decongestion of the urban centers. Urban slums would start disappearing with large number of industries getting shifted to rural areas resulting in increasing opportunities in the rural areas. Thus, both the rural as well as urban areas get benefited by setting up more industrial units in the rural areas, making rural areas attractive locations for investments.


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Constraints of Potential Rural Entrepreneurs and Development Inputs

Sr. No. Constraints Inputs 1. Low self-image and confidence. Motivational inputs, unfreezing and

experience sharing by successful local entrepreneurs.

2. No faith on others includes friends. Group building experiences.

3. No exposure to industry/business. Field visit to factories and big markets.

4. Who to contact for starting a venture, what formalities and procedures are to be followed?

Information inputs on procedures and formalities.

5. How to know whether the identified business is a viable and sound proposition?

Opportunity identification and guidance.

6. How to know whether the identified business is a viable and sound proposition?

Market survey, project report preparation.

7. How does one carry out bank operations?

Training in simple banking procedures like filing up deposit and withdrawal slip etc.

8. How to manage the business? Basic management orientation through simulation exercises.

9. How to read and write accounts? Functional and numerical literacy. Simple accounting in terms of writing income and expenditure.

10. Almost no technical skills Technical training (on-the-job training).


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2. TYPES OF RURAL ENTREPRENEURSHIP Rural entrepreneurial activity can be broadly classified in four types such as: i) Individual Entrepreneurship - It is basically called proprietary i.e. single ownership of the enterprise. ii) Group Entrepreneurship - It mainly covers partnership, private limited company and public limited company. iii) Cluster Formation - It covers NGOs*, VOs*, CBOs*, SHGs* and even networking of these groups. These also cover formal and non-formal association of a group of individuals on the basis of caste, occupation, income, etc. iv) Cooperatives - It is an autonomous association of persons united voluntarily for a common objective.

An entrepreneur has to decide on a particular type of entrepreneurship based on the various options available. 1] INDIVIDUAL ENTREPRENEURSHIP/PROPRIETORSHIP

In this; it is the entrepreneur who is the only (100%) owner. The entrepreneur bears full responsibility for each and every activity and is alone the strategic thinker and decision maker to make the unit viable as well as profitable. There is hardly any difference between personal assets and business assets. The entrepreneur has "unlimited liability under the law". This type of entrepreneurship is quite prevalent in rural areas where an entrepreneur has limited resources. 2] GROUP ENTREPRENEURSHIP

It is classified into mainly three types such as i) Partnership; ii) Private Limited Company and iii) Public Limited Company.

a. Partnership In this case there is no individual ownership of the unit. There is another partner with you who works with you and also bears the responsibility and shares profit. Like proprietorship, the liability is "Joint and Several". For partnership type of entrepreneurship, mutual trust is a must. Besides both the partners in partnership must understand their respective responsibilities and complement each other for common objectives and goal. The characteristics of partnership are a) association of two or more persons (maximum twenty), b) contractual relation: c) lawful business, d) sharing of profit, e) agency relationship, f) unlimited liability; and g) non-transferability of interest. The requirements of ideal partnership are good faith, common approach, written agreement, registration, adequate capital, skills and stability. Partnership is governed by Indian Partnership Act, 1932.


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The merits of partnership are ease of formation, large resources, and combined abilities and judgment, flexibility, quick decisions, cautions operations, survival capacity, better human and public relations, improved chances of growth and protection of minority interest. The demerits could be lack of harmony, divided authority, instability of business, lack of public confidence, risk of implied authority, unlimited liability, non-transferability of interest and social losses.

b. Private Limited Company

In this case the shareholders are the owners. There must be a minimum of 2 (two) shareholders. The Indian law allows maximum of 50 (fifty) shareholders. The liability is limited in this case. As such if the company goes bankrupt then no one has to part with one's other personal assets to meet the obligation of the creditors. Being a private limited company, one can raise far less money than a public limited company. But there is better control as the number of shareholders is few besides they may be your kith and kin. Many provisions of Company Law are not applicable to private limited companies. There is much less paperwork too. Companies are governed by Companies Act, 1956.

c. Public Limited Company

In this case the shareholders are also the owners. There must be minimum 7 (seven) shareholders. There might be millions of shareholders as there is no such upper limit. Being a, public limited company it can raise more money from the public by issuing equity shares, debentures, etc. to meet various expenses of the company. All provisions of the Company Law are applicable here. It is more of a professional organization and is fully governed by the Companies Act, 1956. It is to be noted that merit of forming a company are many such as large financial resources, limited liability, continuity, transferability of shares, benefits of large scale operations, professional management, public confidence, scope of expansion and growth, social benefits, tax benefits, etc.

3] CLUSTER FORMATION

It is primarily a formal and non-formal group of people to achieve a common objective. It basically covers Non-Governmental Organizations (NGOs), Voluntary Organization (VOs), Self-Help Groups (SHGs), Community-Based Organizations (CBOs) and networking of all these.

a. NGO’s These are non-profit making organizations registered under the Society's Registration Act, 1860. A group of seven people come on a common platform to carry out defined activities for the socio-economic development of people. The main characteristics of NGOs are: i) These are initiated, sponsored and constituted mainly by the Government as autonomous bodies to fulfill specific developmental objectives. ii) These receive funds mainly from the Govt. and channelize them through VOs. iii) These are usually non-political in nature.


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iv) These are formal organizations with rules, regulations and procedures with professional management.

b. VO’s

These are voluntary agencies initiated by individual for welfare and development. They may or may not be registered under any appropriate Act. Generally these are registered under any appropriate Act like Societies Registration Act, 1860, Indian Trusts Act, 1882 or Religious Act, 1920. These frame their own Memorandum of Associations, rules and regulations and systems for their governance. The VOs receive funds from various donor agencies including NGOs. VOs are generally managed by persons with motivated leadership and commitment. Their main promoters are honorary with a strong desire to serve the people.

c. SHGs

Self-help groups are a platform of 10-20 people mainly, below the poverty line (BPL) to form a social group not only to mutually help each other but also to achieve common objective. Only one member from a family is eligible for membership group. The Swanjayati Gram Swarozgar Yojana (SGSY) of the Ministry of Rural Development, Govt. of India covers all aspects of self-employment of the rural poor viz. organisation of the poor in SHGs and their capacity building, training, selection of , key activities, planning of activity clusters, infrastructure building up, technology and marketing support. This is a non-formal group. The SHGs get funding from the NGOs, VOs and even from the Government to carry out various activities in areas of common interest and an objective for economic empowerment.

d. CBOs

These are community based organizations and are informal in nature. Specific community with a specific avocation forms a group to carry out various activities in a group. A CBO is a group of people from a common living area of habitat who get together for a common cause. The overall objective is to enhance the bargaining strength of individuals in the group. For example: fishermen group, cobbler group, milk producers, etc.

4] COOPERATIVES According to ILO, a cooperative organization is an association of persons usually of limited means, who have voluntarily joined together to achieve a common economic end, through formation of a democratically controlled business organisation making equitable contributions to the capital required and accepting a fair share of risks and benefits of the undertaking. According to International Cooperative Alliance (ICA) "A cooperative is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly-owned and democratically controlled enterprise".


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3. DOMAINS OF RURAL ENTREPRENEURSHIP There are large number of products and service in rural areas, which can be leveraged by entrepreneurs to set up new small and micro enterprises. In fact entrepreneurship can be pursued in virtually any economic field. The idea here is to make the readers aware of the linkages between various economic activities within a particular category in the Indian context. The following indicative sectors may be taken into consideration for gainful employment:

a) Original enterprises created out of opportunities in supplying rural products to urban consumers and new products to rural consumers. b) Replication of urban experiences in Rural Setting. Rural Entrepreneurship in India One of the main aims of development policy in India is to provide employment to millions of unemployed rural youth. India's rural economy is primarily agricultural based, but the rapid rise in its population with consequent pressure on land has led the planners to lay greater emphasis on industrial development. The core of the problem in countries like India is surplus agricultural labour and closure of traditional village industries, resulting in unemployment in rural areas and movement or, migration of rural youth to urban area in search of jobs thus putting more pressure on the urban infrastructure and amenities. Rural industries generated employment for 47.97 lacs persons in the year 1996-97 as against 37.21 lacs persons in the year 1992-93. Of late, Agro based industries have generated several employment opportunities to rural people. Income and Employment Potential Industries in rural area, which are mostly micro or tiny in structure, are quick yielding. In other words their gestation period is much less as compared to large-scale industries. Rural industries are labour intensive and provide large employment opportunities to rural folks of all age groups. Khadi and Village Industries Commission at national level and Khadi Villiage Industries Board at State level have played a pivotal role in this context . The village and small-scale industries was set-up with the following aims: 1) to orient the rural population specially the rural youth towards entrepreneurship; 2) to increase the levels of earnings of artisans in rural areas; 3) to sustain and create avenues of self-employment among the unemployed youth; 4) to ensure regular supply of goods and services through use of local skills; 5) to develop entrepreneurship in combination with improved methods of production through appropriate training and package of incentives; 6) to preserve craftsmanship and art heritage of the country.

1. Food processing covers variety of products from various sectors comprising agriculture, horticulture, plantation, animal husbandry and fisheries & marine products. India is one of the major food producers in the world and has enough availability of a wide variety of food-grains, fruits, vegetables, flowers, livestock, poultry, fish and seafood. Diverse climatic conditions and a long coastline has contributed to India's position as a large food producer with variety. However, the food processing industry is still a low-key affair and only two

Food Processing


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percent of fruits and vegetables and 15 per cent of the milk produced are processed in the industries as a whole. The processed food industry, which ranks fifth in size in the country, represents 6.3 per cent of GDP. It accounts for 13 per cent of the country's exports and 6 per cent of total industrial investment which is estimated at US$70 billion, including US$22 billion of value added products. After India started pursuing the path of economic liberalization this sector has been attracting Foreign Direct Investment across different parts of the world in almost all the sectors.

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Foods are dehydrated either to preserve a perishable raw commodity to ensure its availability round the year or to reduce the cost and /or difficulty in packaging, handling, transporting and storing, by converting it to a dry solid by reducing its weight and volume. Of course, there are other benefits to the user such as price stability, and also availability for immediate use without preparation. Grapes, bananas, mango, jackfruit, pineapple, papaya among others are highly nutritious and delicious and can be used as preserved food which has got high potential. Similarly most of the vegetables are seasonal and dehydration under hygienic conditions makes them available throughout the year at a reasonable cost. These are convenient enough to be used by large scale catering establishments and for defense services and in various expeditions, etc.

Dehydrated Fruits and Vegetables

3. Fruit based beverages are relished very much particularly when served chilled especially during summers. These are nutritious and healthy. Juice, Squash, Crush, Cordial and Syrups are popular fruit products. Products like syrups and squashes of orange, mango, lime, pineapple, grape, apple, etc. besides their jam and jelly are very popular among the masses.

Fruit Based Beverages

4. Mushrooms including the commonly known “Dhingri” grow on decaying tissues of plant material under normal conditions.. It is light grey in colour and has pleasant flavour. The study at CFTRI, Mysore has shown that it can be cultivated easily under normal conditions of temperature (21° to 2S°C) and relative humidity ( 5% to 75%) for a period of 6 to 8 months in a year in many parts of the country. It can also be cultivated in summer months, by providing extra humidity and low temperature with the use of modem techniques. The spawn (seed material) of mushroom is the ramified mycelium, which is used as which is used as seed. The spawn is prepared by inoculating the pure culture of mushroom on paddy jowar straw under certain conditions. This is known as master spawn. This can be stored at room temperature for a period of 3 months from the date of inoculation. Mushrooms have got tremendous market, both domestic as well as international. Local market also has two segments, one is the domestic consumer and the other is the business consumer at hotels and restaurants. Use of Mushroom has increased substantially at local level in the recent past.

Mushrooms

5. Chikki Industry Chikki is a popular and traditional Indian sweet. It is known by different names in different languages and in different States. The ingredients which go into production chikkies are puffe&rmsted Bengd gram, groundnut, puffed rice, beaten rice, coconut scrapings


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individually or in combination. The sweetening agents are added to the preparation. is a popular item and has potential both in internal as well as export markets. The main production areas of Chikki are Lonawala & Khandala in Maharashtra which are located on the Mumbai-Pune highway. In this area several smallscale units produce Chikki with over 100 varieties which are of very high quality products.

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Poultry farming is one of the fastest growing industries in India. It is quite profitable and can be managed by persons of all ages from all walks of life in all sections of the country. It may be conducted as an exclusive business or as a side business for additional income. The National Commission of Agriculture states that poultry farming has certain special Strategies and Experiences features, which favour its large-scale adoption by small and marginal farmers and agricultural labourers. Land required for poultry farming is small; the capital investment for starting small poultry units is less. Poultry farming can be started on a small scale and can be expanded gradually. It does not require heavy investment and the raw materials are easily available. Also short-term training facilities are available and even uneducated people could set up poultry farms. Profits are earned much sooner than most other farm products. Some of the advantages of poultry keeping are: 1) Supplies nutritious food for the people. 2) Serves as hobby and sport for some people. 3) Requires less capital to start a poultry unit and gives good and quick 4) Needs little space and can be done in phases. 5) Water requirement is less as compared to crop cultivation or farming. 6) Waste products like bran and substandard grains can be utilized. 7) Eradicates garden pests such as caterpillars, insects and snails. 8) Gives rich fertilizer for crop cultivation especially for vegetable gardens. 9) Poultry feathers are useful in many ways. 10) It is a favourable side business to agriculture. 11) Gives income throughout the year. 12) Not much labour is involved and generates self-employment. 13) Supports many ancillary units. 14) Easy to manage, even women and children can look after them. 15) Some medicines and tonics are obtained from poultry as by-products. Presently it is a well-organised agro-industry where people with limited or adequate finances can start commercial poultry farming.

Poultry Industry

7. Cottage industries are those industries run within the residences of the artisans by family members without any hired labour, with the use of locally available raw materials and by making little capid investment. The major industrial activities in this scheme include pot making, match making, ghani oil extraction, bee-keeping, bamboo cane works, basket-making, korai mat weaving, stone weaving items, clay folks.

Cottage and Handicrafts Industry


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8. Oil Industry

The village oil industry employs lakhs of artisans in rural areas. This industry renders service to the society in two-ways; it supplies fresh, flavoured and nutritious oil to the consumers on the one hand and provides employment to the traditional artisans and others unemployed, on the other. In order to increase the production of oil, all sources of equipment must be utilized Since Ghani is a simple machine, which needs low capital and small quantity of raw materials, it must be encouraged.

The vegetable oils are essential ingredients of food needed for the growth and maintenance of human body. Crushing of oil seeds to obtain edible oil for human consumption has been an age-old village industry in India. The Telis have been an important component of the village society. Either they have been crushing oil-seeds procured by them or providing oil extraction service to oil-seed producers. This provides nutritious oil with natural flavour and taste.

9. The pottery is traditional industry of rural India. In fact it is age-old industry where the pottery products are used within rural India by rural folks for cooking (Handi), storing water (Matka & Surai) and crockery and cutlery in the form of Kullar, etc. The urban Indians are using the pottery products for plants, very special kitchen items made up of china clay for serving tea, coffee, clay bowels for preparing curds and serving food.

Pottery

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SERVICE SECTOR RURAL ENTERPRISE The service sector enterprises are generally more successful, no matter whether co-operating

in rural or urban areas. What is more important is identification of the nature of need based services related business activity.

With Industrial growth and revolution in communication industry especially in the field of electronic media all over, the rural India is also using TV, radio particularly for various FM stations available in local and regional language, cable network, land line and mobile phones. The various service providers have opened a range of self-employment opportunities to rural educated youth who have the competence and/or are willing to work or start their own enterprise in the area of service needs of rural India. Self-employment oriented training programmes to start an enterprise with small investment are easily available to rural youth through various training institutes which do not require high level of educational qualifications. It rather requires the necessary skill and basic aptitude to learn and understand the skill. Service in this sector varies from opening of a shop as sales outlet, a service outlet, outlet for accessories or an outlet of the main service provided vendors specially mobile phone companies. This area covers large number of activities in rural India where youth can undertake the activity of higher taste. This being a purely service oriented sector, a person with good interpersonal relations and qualities will win over the business competition, which in any case is basic requirement to become a successful entrepreneur.

Repair of Phone/Mobile Phone, Electronic and Electrical goods


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India is one of the oldest, culturally richest and diverse country full of colour and boasts of a civilization with rich flora and fauna. Our cuisine is mouth watering, scenic beauty is breathtaking, folk dances are simply enchanting and wide array of places of tourist attraction - from the valleys of Himachal Pradesh, hills of Uttranchal, plains of the river Gang% forests of North East, or plateau of South India, In other words, India is simply full of diversity and that is why the latest blitz of the Government terms her as Incredible India. Nearly two-third Indians live in villages; in fact our roots are located in rural India. Moreover most of tourist sites are located away from the urban centres towards rural India and the trend is also shifting towards the rural areas. There is wealth of craft performing art, vivid lifestyle and cultural diversity obtaining in rural India.

Rural Tourism

12. In the absence of leisure time Bs well as purchasing power, the rural folks are generally devoid of the entertainment which everyone needs for rest and relaxation. With the reach of electronic media the rural youth has developed a taste towards music, dance, acting, etc. in addition to traditional songs, folk dances, cultural activities, traditional games and sports which can be used as source of revenue generation. This type of service can be provided either by an individual having good financial background or by a small group rendering and promoting such activities and services in rural India on various occasions such as social functions, VIP visits, etc. Such events are attracting not only the domestic tourist but international tourist also is now keen to observe Indian customs, culture and costumes thus becoming a very good source of income for the rural unemployed youth.

Entertainment

13. With the Government efforts to extend the development initiatives to rural India especially in developing States, the Modem industries are being given special packages and relief with tax benefits for setting up the industries at a subsidized cost with the aim to provide job opportunities, infrastructure development in terms of road, power, water supply, e t ~T.h is, in consequence, leads to overall increase in the living standards of local people where the modem industries are being set up by various national and international companies. As a matter of policy, the industries are being asked to shift from the large townships like metros especially to decongest and lessen the burden on the urban centres. These industries offer great opportunities of varied nature of jobs for local youth who are educated and are willing take challenging assignments, whether wage-employment or self-employment type. The employment opportunities are basically based on qualifications, skills and expertise while self-employment opportunities or indirect employment opportunities are based on the various types of industry related trade or service activities which the rural youth can undertake and be gainfully employed. Modern industry is now playing very important role ever since globalization and liberalization policy of Government came into existence and it has definitely helped the rural youth in finding suitable vocation.

Modern Industries


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4. PLANNING A RURAL ENTERPRISE

Planning is the foremost function in decision making to set up a rural enterprise. Project planning aims at formulation of all the future project activities well in advance, determine the quantum of resources required for the purpose and coordinate various activities to complete the activities as per schedule at the right time. The first and foremost step to initiate the planning process is the identification of a suitable project followed by information accessibility, market assessment, preparation of feasibility report, etc. Besides, one has to know the registration procedure of the enterprise and various legal aspects of business.

PROJECT IDENTIFICATION

For identifying a new project, there are many institutions/agencies such as Entrepreneurship Development Institutes (EDIs)/Centers, Small Industries Service Institute (SISI), Technical Consultancy Organizations (TCOs), etc. at State level and District Industries Centers (DICs), private consultancy organizations, etc. usually located at the district headquarter or in a nearby town which can provide effective counseling services in planning the enterprise and also in the subsequent activities.

Once one decides to set up own business, one has a wide choice before her/him. In other words, one has a choice of starting –

a) Manufacturing unit - Setting up an industry means one has to organize many things like planning, arranging for technical know-how, buying and installing machinery, building a factory, managing several departments like production, sales, quality control, personnel and administration, finance and so on and so forth.

b) Trading - Trading involves planning, purchase, sale, stock control and financial management. A retail grocery shop, compared to an industry, is a simpler business. A large departmental store, however, is not so simple.

c) Service enterprise - A service enterprise can either be simple or complex. For instance, setting up a photocopying centre and managing it may be simple but inspection of offshore oil-gas lines is a rather complex business.

To set up an industry or a service enterprise, one can start an enterprise in sectors like chemical, pharmaceuticals, basic metal industries, metal products, machinery other than electrical machinery, electrical machinery, electronics, transport equipments, textile, rubber, plastic, food, mineral-based industries, ceramics, agro-based but non-food industries (e.g. making briquette from agricultural waste), paper, or glass.

INFORMATION ACCESSIBILITY

One needs various types of information about several aspects such as opportunities, market, technology, finance, policies, location, etc. The different sources of information could be:

i) Similar enterprise owners/producers

ii) Raw materials suppliers


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iii) Machineries suppliers

iv) Packing materials suppliers

v) Customers

vi) Dealers

vii) Consultants

viii) Employees of similar enterprises

ix) Bank officials

x) Promotional agency and regulatory agency officials

xi) Association of similar product(s) manufacturers and so on.

Information on Business Ideas - There are numerous directories, handbooks and databases published by the Govt. of India, Associations and other agencies for obtaining information on opportunities.

These are information in the following forms:

• Feasibility studies • Project profiles • Industry studies • Area development studies

The organizations in possession of information on business opportunities are are:

1) District Industry Centres (DIC) - (one in each district)

2) Technical Consultancy Organizations (TCO) - (one each in most States)

3) Centres for Entrepreneurship Development (one each in many States)

4) Small Industry Service Institutes (SISI) (one in each of many large cities)

5) Lead Bank (one in each district)

6) Industrial Extension Bureaus (these exist in several States) and are known as INDEXTB, Udyog Mitra, Udyog Sahay and so on).

7) National Industrial Development Corporation (NIDC), New Delhi

8) Khadi and Village Industries Commission (KVIC)

9) Commissioner of Cottage Industries (one in each State)

10) Entrepreneurship Development Institute of India (EDI), Ahmedabad

11) National Institute of Entrepreneurship and Small Business Development (NIESBUD), New Delhi


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12) National Institute of Small Industry Extension and Training, Hyderabad

13) Small Industries Development Bank of India (SLDBI), Lucknow

14) Industrial Consultancy Firms

Ideas

An ability of a business idea among various alternatives being considered is a must.

The key questions in settling down to a viable business idea are as under:

• Uses/applications of the product or service • Possible scales of production or operation for which economies of scale is to be looked into • Investment for a given scale and the sources of funds and related expenses there on • Market prospects • Unit sale price • Technical arrangements • Expected annual turnover • Expected profit and break-even analysis • Success determinants, etc.

Capital Organization

Capital is the prime requirement for any project. Term lending institutions such as State Financial Corporations (SFCs), State Industrial Development Corporations (SIDCs), State Industrial Investment Corporations (SIICs), Commercial Banks, etc. are the prime sources for meeting the project cost such as :

• Land cost and land development charges, • Construction of buildings, • Purchase of plant and machinery, • Acquiring technical know-how, • Procuring miscellaneous fixed assets, • Margin of working capital, • Contingencies, etc.

While sanctioning loans, the financial institutions consider the credit worthiness of the project beside the payback capacity of the project. Hence assessment of financial viability is a must before releasing the funds.

Support System

Information about support system is a must for an enterprise. In short-term it is the information which helps in-sound decision making. The information could be on infrastructure facilities, incentives available, financial tie-ups, availability of raw materials, tax concessions, etc.

Information on various infrastructure facilities such as availability of land, power, and water, facilities for effluents or wastes disposal should be available from the District Industries Centre of the District or from the concerned State Directorate of Industries. For financial tie-ups the State Financial Corporation and its branches which are located at various districts of the State can effectively guide.


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Even commercial banks of the locality could be approached. Also proper analysis has to be done by comparing relevant facts and figures so that the best term or package is available to the entrepreneur.

There are tax concessions and other allowances available from time to time by the Central Government or the concerned State Governments in the form of tax holidays, sales tax incentives, etc. for which the concerned District Industry Centre (DIC) shall guide. They can also advise as to how to meet various provisions of income tax, sales tax, excise duty, etc. depending upon the nature of the product.

MARKET ASSESSMENT

For sound market assessment three things are important such as –

Analysis of Market Demand

Market demand for a product is the total volume that would be bought by a defined customer group, in a defined geographical area, in a defined time period, in a defined marketing environment, under a defined marketing programme. Hence, there are eight elements of variables which must be analyzed in order to determine market demand.

The Competition

For a particular product of different brands, the competitive situation could be assessed by analyzing the market share, price, product features, product age, discount to dealers, credit terms, major customers, etc. of a brand vis-a-vis the other.

Trading Practices

An Entrepreneur must try to understand the trade practices that are relevant to her/his product. The intermediaries in the channel, prevailing sales tax, legal implications, etc. have to be understood properly for assessing market.

In selection of a product of service, there is the need to analyze the market through primary and secondary data. These data can help to assess the current demand, the forecast and the potential of a particular product or service besides the opportunities and risks available to it.

Primary Data & Secondary Data

It is the information which is collected first-hand through field work or survey by various methods such as Questionnaires, Personal Interviews, etc. There are various methods of collecting primary data i.e. observation method, experiment method and survey method.

Secondary Data: Information which already exists in documented form. Such sources can be –

a) Annual reports of the companies

b) Trade publication and records

c) Libraries and trade information centers

d) Directories of manufacturers


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e) Newspaper, business magazines, etc.

f) Govt. publications (e.g. DCSSI profiles)

g) Data agencies, consultancy firms, etc.

h) Information from dealers, various agencies

Market Research (MR)

It helps to collect primary data. The more accurate and fresh the data, the greater are the benefits. The American Marketing Association defines marketing research as "The systematic gathering, recording and analyzing of data about problems related to the marketing of goods and services".

There are five steps in marketing research process which are:

1. Problem definition 2. Research design 3. Field work 4. Data analysis 5. Report presentation and implementation

FEASIBILITY REPORT

It is very essential to prepare a feasibility report covering all the activities and the resources needed for the project. The feasibility report broadly contains the following:

a) The background of the entrepreneur i.e. the educational background, family background and professional exposure

b) Market potential and marketing strategy

c) Selection of location of the project which should be on the basis of proximity to the source of raw materials and/or markets, availabilities of labour, infrastructural facilities, incentives, etc.

d) Requirements of land and building. It is to be ensured that the land is free from any legal encumbrances

e) Requirement of plant and machinery including their installation

f) Manufacturing process

g) Requirements of utilities such as water and electricity

h) Requirements of raw materials and sources of supply

i) Estimated cost of the project

j) Means of finance

k) Cost of production, taxes and profitability

h) Break-even point


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m) Cash flow statement

n) Internal rate of return and

o) Economic viability

A feasibility report must provide a base-technical, economic and commercial-for an investment decision on any industry/entrepreneurial project. It should define and analyze the critical elements that relate to the production of a given product together with alternative approaches to such production. Such a report should provide a project of a defined production capacity at a selected location, using a particular technology or technologies in relation to defined materials and inputs, at identified investment and production costs, and sales revenues yielding a defined return on investment. It must consider all aspects of business right from project background and history, location and site to conclusion covering its advantages, drawbacks and implementation of the project.

REGISTRATION PROCEDURE

As a small-scale unit it should be registered with the District Industries Centre (DIC) of the district in which project is to be proposed to be located. It has to obtain No Objection Certificate from the State Pollution Control Board. Depending upon the nature of the product or service, it has to be registered for Sales Tax, Service Tax, and other statutory purposes.

LEGAL ASPECTS OF BUSINESS

An entrepreneur must be aware of various legal and statutory obligations affecting labour related regulations of the business. These are covered under various Acts/legislations as under the Factories Act, 1948; Industrial Disputes Act, 1947; social legislations and wage legislations.

1. The Factories Act, 1948

This Act is applicable where the number of employees is ten or more and where power is used and twenty or more where power is not used. Under this Act the entrepreneur has to take necessary measures for health, safety and welfare of the workers as per the Act besides taking necessary precautionary measures against fire. Further, necessary records have to be maintained for working hours, annual leaves, overtime, advances, wages, deductions, etc. The adherence to various provisions of the Act shall be regulated by the Chief Inspector of Factories.

2. The Industrial Disputes Act, 1947

Thus Act is applicable to every trade, business, service, etc. which is also considered as an industry under this act. Industrial disputes are common in a workplace. Such disputes may arise between employers and employees or among the employees. This dispute may be related to employment or non-employment or terms of employment or the conditions of labour of any person. The Authorities under the Act are Works Committee, Conciliation Officer, Board of Conciliation, and Courts of Inquiry, Labour Court, Industry Tribunals and National Tribunal. An entrepreneur has to follow necessary procedures in case such a dispute arises.

3. Social Legislation

Social security is a need for any employee. The Employees Provident Fund and Miscellaneous Provisions Act, 1952 are applicable to any establishment employing 20 or more employees. Under


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this Act, the minimum contribution payable by the employer towards provident fund is 8.33% of the salary. The employee has to make an equal contribution. The details and modalities could be obtained from the Regional Provident Fund Commissioner. Various other schemes which are covered under this Act are

a) Employee Family Pension Fund and b) Deposit Linked Insurance Scheme.

4. Wage Legislation

It covers the following Acts:

i) Payment of Wages Act, 1936,

ii) Payment of Gratuity Act, 1972,

iii) Payment of Bonus Act, 1965, and

iv) Minimum Wages Act, 1948.

i) Payment of Wages Act, 1936 - This Act is applicable to establishment where ten or more workers are employed on any day of the preceding 12 months with the aid of power and twenty or more workers without the aid of power. Wages mean basic pay, dearness allowance, city compensatory allowance, overtime wages and production incentives. As per the norms, necessary registers for wages and other related matters have to be maintained.

ii) Payment of Gratuity Act, 1972 - It is applicable in all establishments in which 10 or more persons are employed. Gratuity shall be payable to an employee who has put in uninterrupted service for a minimum period of five years.

iii) Payment of Bonus Act, 1965 - The Act applies to establishments employing ten or more persons. Under the Act the employer is liable to pay bonus to employees as an annual statutory payment irrespective of profits. This Act includes all employees drawing wage or salary up to Rs. 3500 per month. To become eligible for bonus, every employee must have worked for 30 working days in the establishment in the relevant accounting year. A minimum 8.33% of wages actually earned during the financial year subject to minimum of Rs. 1,0001- is payable to each eligible employee irrespective of profit or loss.

iv) Minimum Wages Act, 1948 - This is applicable in 44 scheduled industries. Basic wages are fixed for different industries and special allowances are announced by the labour commissioner every six months. Necessary registers have to be maintained.


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5. HUMAN RESOURCES FOR DEVELOPING RURAL ENTREPRENEURS

Human Resources are amongst the most essential resources that are required for fostering rural entrepreneurship. The importance of human resources cannot be over emphasized, for it is this resource alone that makes the greatest impact on socioeconomic development of rural areas.

Achievement motivation is a key to entrepreneurship development. This is achieved in many ways: childhood reading, upbringing, exposure to challenging situations, self study, apprenticeship, coaching and training, all contribute to achievement motivation.

Training for Entrepreneurship Development

Development of entrepreneurs through systematic training namely Entrepreneurship Development Programmes (EDPs) has emerged as an important strategy for development of human resources for promoting small business enterprises in rural areas. India has come a long way since the idea of creating an entrepreneur through training was first mooted over 40 years ago.

The focal point of all entrepreneurship development programmes is the entrepreneur, the person who matters in the process of development. The entrepreneur should be seen in the social context and also in the context of the needs of rural societies. The conceptual framework of the development of rural entrepreneurship should be made the starting point so that the various strategies used in developing entrepreneurs can be properly understood and planned.

Entrepreneurial motivation is the most important factor in contributing to the development of entrepreneurship in a society. So, various aspects that help in developing achievement motivation need to be included in the EDP training courses. These skills have to be properly emphasized.

In order that the potential entrepreneurs succeed in their entrepreneurial ventures, they need to be thoroughly prepared, rather pained, to imbibe and nurture the key traits like taking initiative, perseverance, self-confidence, ability to identify and grab opportunities, information seeking ability, planning, problem solving, persuasive and influencing competencies, risk taking willingness, hard working, quality consciousness, sense of efficacy, openness to feedback, learning from experience, time orientation, concern for society, competition and collaboration, dignity of labour, respect for work, need for independence and need for outstanding performance, etc.

Normally the above traits or qualities are not found in the majority of rural people since they are not oriented to an entrepreneurial culture. The environment, in which they live, and the lack of opportunities for entrepreneurial encounters, etc. restrict them. It is, therefore, necessary to create an atmosphere for promoting potential entrepreneurs. Entrepreneurship Development Centres being run in each State, and national level institute like EDII, NISIET, NIESBUD, IIED, ICECD, have designed several training courses for training potential entrepreneurs on various aspects of enterprise development. In addition, several agricultural universities, research institutes, KVIC, Krishi Vigyan Kendras have provided adequate training opportunities on the subject matter and technologies for enterprise development. RUDSET institutes also provide training for potential entrepreneurs under PMRY scheme.

In addition, the network of SISIs located all over the country provides technical guidance and support for small enterprise development.


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Training and Development of Rural Entrepreneurs

A brief sketch of the training and support programmes launched by the government is given to enable the reader get a comprehensive view of the efforts of human resources development for rural entrepreneurship.

Training of rural Youth for Self Employment (TRYSEM):

Training of Rural Youth for Self Employment was launched by the Government of India in 1979 as a facilitating component of Integrated Rural Development Programme (IPDP). In this programme, the selected rural youth are put through a period of training, either with a training institution or a master craftsman to provide necessary technical and entrepreneurial skills. On completion of training, the identified youth receive a combination of subsidy and institutional credit under IRDP for acquisition of an income generating asset. The syllabus for each trade under TRYSEM should include training in job skills, as well as management skills. The latter may include elements of bookkeeping, simple knowledge of marketing, product costing, familiarization with entrepreneurial assistance agencies and with project financing by banks.

Prime Minister's Rozgar Yojana (PMRY):

Prime Minister's Rozgar Yojana was launched on 2nd October 1993 to assist educated unemployed youth to set up self-employment ventures. It relates to the setting up of the self employment ventures in all economically viable projects (except direct agricultural operations). The Scheme also seeks to associate reputed non-governmental organisations in implementation of PMRY Scheme especially in the selection, training of entrepreneurs and preparation of project profiles.

The scheme targeted for setting up of nearly 7 lakh enterprises and consequent employment generation to more than one million educated unemployed youth in the last four years of the Eighth Five Year Plan. The target for the year 2004-05 & 2005-06 under the Yojana has been enhanced from 2.20 lakh beneficiaries to 2.50 lakh beneficiaries per annum for creation of additional employment opportunities in the rural non-farm sector.

The main objectives of REGP are a) to generate employment in rural areas, b) to develop entrepreneurial skill and attitude among rural unemployed youth, c) to achieve the goal of rural

Swaranjayanti Gram Swarozgar Yojana (SGSY):

Swaranjayanti Gram Swarozgar Yojana (SGSY) was launched by Government of India in 1999 with a focus on providing effective self employment through self help group approach and activity cluster approach for rural poor families below poverty line. The self help groups are motivated through training and capacity building for taking up thrift and credit activity and start their own small rural enterprises through the financial assistance of Revolving Fund Assistance.

The Scheme also seeks to associate reputed non-governmental organisations in implementation of SGSY Scheme Rural Employment Generation Programme (REGP): On the basis of recommendation of the High Power Committee submitted in May 1994, headed by the then Prime Minster of India, the KVIC launched Rural Employment Generation Programme (REGP) with effect from 1st Nov 1995, for generation of two million jobs under the KVI sector in the rural areas of the country.


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industrialization, And d) to facilitate participation of financial institutions for higher credit flow to rural industries. The REGP scheme is applicable to all village industries project set up in rural areas. The eligible agencies under the scheme are (i) individuals (rural artisans/entrepreneurs) ii) institutions cooperative societies, Trusts & SHGs for projects up to Rs. 25.00 lakhs.

Under the scheme, the borrower is required to invest her/his own contribution of 10 percent of the project cost. In case of SC/ST and other weaker section borrowers, the beneficiary's contribution will be 5% of the project cost. Banks will sanction 90 percent of the project cost in case of general category borrowers and 95 percent of the project cost to the weaker section beneficiaries/institutions and disburse full amount of the loan. After the sanction of the credit facility by the Bank branch, eligible amount of Margin Money will be kept in Term Deposit of two years in the account of the borrower at the leading bank branch, which will be credited to the borrower's loan account after a period of two years from the date of first disbursement of loan.


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6. BASIC INFRASTRUCTURE FOR RURAL ENTREPRENEURSHIP

Infrastructure plays a significant role in providing and enabling encouraging atmosphere for the growth and spread of rural enterprises and small industries.

The achievement of an 8 percent growth rate envisaged in the Five Year Plans will require industry sector growth of over 10 percent, with at least a corresponding growth in demand for infrastructure. In India, serious problems have been building up in the infrastructure sector for many years: in transport rail efficiency is low, there has been under-investment and freight rates are high in order to subsidize passengers.

The basic infrastructure includes transport, utilities and communication including railways, roads, ports, power, and telecommunication services. Additional infrastructure facilities that are also required are drinking water, housing, healthcare, among others.

Transport, Power and Communication: A well knit and coordinated system of transport plays an important role in the sustained economic growth of a country. Transport system forms the major basic infrastructure required for harnessing the potential of rural entrepreneurship. Among the transport systems' several modes, rail and road are important while ports also play a major role in some cases.

Railways: Railways provide the principal mode of transportation of freight and passengers. Railways with its vast network spread all over the country play a vital role in the economic, industrial and social development of the country. The revenue freight traffic, being at 5 18.7 million tonnes in 2002-03 and increasing substantially from then on, is the backbone of industrial growth and caters to improving the performance and profitability of small industries.

Roads: India has one of the largest road networks in the world aggregating to about 3.32 million kilometers by 2004-05. The country's road network consists of national highways, state highways, major/other district roads and village/rural roads. National Highways, comprising only 1.7% of the highway network, carry 40% of the traffic, and another 40% is carried on State Highways and major district roads comprising 12% of the system. But it is connectivity at local levels which has the greatest impact on rural development and poverty alleviation. Over one-third of the villages in the country are not connected by all-weather roads.

The expected share of roads in total traffic would be 65 percent of freight traffic by the end of 2007, which can be achieved through the national highways development programme. Rural roads are also given their due importance through special programmes like PMGSY, whose objective is to link with a population of more than 500 with all-weather roads by the end of 2007. A Central Road Fund was created through a Central Road Fund Act enacted in December 2000.

Pradhan Mantri Gram Sadak Yojana (PMGSY) was launched to provide all weather basic access to about 1.72 lakh habitation of populations of 500 or more. PMGSY roads are constructed to high technical standards and backed by 5 year maintenance contracts. The objective of rural connectivity is to provide basic access and the continuity of linkage up to the market/service centre in a cost effective manner. In a recent study it has been found that the Indian government's expenditure on road construction contributed more to poverty reduction than did the other investments. Roads helped farmers transport their goods to markets, gave them better access to higher-wage employment opportunities in the rural non-farm sector, and increased consumers' access to food markets.


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Investment in infrastructure in general (roads, electricity, and communications) also reduced poverty by enhancing agricultural, productivity growth, thus increasing farm incomes and expanding the non-agricultural sector.

Power: Generation and distribution of electricity from various sources has a catalytic role in development of rural enterprises. Accelerated Rural Electrification Programme (AREP) envisages at providing supply of electricity for production oriented activities like rural industries, minor irrigation and electrification of villages.

To give impetus to rural electrification, the Government is paying special attention to creation and augmentation of Rural Electricity Distribution Backbone and Village Electricity Infrastructure so as to cover all the un-electrified villages and rural households in five years. Rural Electricity Supply Technology Mission (REST) has been set up to oversee the implementation of schemes under AREP.

The Electricity Act, 2003 enacted with a progressive outlook has envisaged a provision of license-free generation and distribution in the rural areas and regulation of power supply throughout the country.

The Rural Electrification Corporation Limited (REC)'s current mission is to facilitate availability of electricity for accelerated growth and for enrichment of quality of life of rural and semi urban population and to act as a competitive, client-friendly and development oriented organization for financing and promoting projects covering power generation, power conservation, power transmission and power distribution network in the country. Adequate and uninterrupted regular power supply will augment the growth of small industries and enterprises in rural areas.

Telecommunication: The telecommunications services form the core area of infrastructure development today with the thrust on e-governance up to district, tehsil and Gram Panchayat levels. Telephones have become omnipresent with installation of more than 37000 electronic telephone exchanges by the government.

The results have been dramatic. After decades of constraints, tele-density rose from 1.57 per 100 persons in 1991-2 to 4.4 in 2002 (including mobiles). The target for direct exchange lines in the Ninth Plan was achieved. Capacity grew by 22% p.a. sufficient to sustain new telecoms-based industries such as call centres - and costs fell. Contractual and regulatory constraints on the private sector were eased in the light of experience. There is still a marked difference between rural and urban areas, with tele-density being 1.14 in rural areas against 10.16 in urban. One third of villages have no phone lines.

Computerization of Land Reforms (CLR) was started as a centrally sponsored scheme in 1988-89 on a pilot basis in eight districts in eight states to remove the problems inherent in the manual system of maintenance and updating of land records and to meet the requirements of various groups of users’ people, planners and administrators. The CLR scheme is extended to about 365 districts and 35 19 tehsils or taluks.

Scheme of Fund for Regeneration of Traditional Industries (SFURTI):

Government has recently launched the Scheme of Fund for Regeneration of Traditional Industries (SFURTI) under which 100 traditional industry clusters (of khadi, village industry and coir) would be taken up for comprehensive development over 5 years. The KVIC and the Coir Board are the nodal agencies for the Scheme, which will be the first comprehensive initiative for regeneration of the khadi and village industries sector, based on the cluster development methodology.


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7. MANAGING A RURAL ENTREPRISE

A rural entrepreneur attempts at managing his enterprise through three sets of enterprise management functions: primary, production management and financial management functions.

After launching a rural enterprise, various entrepreneurial activities are taken up by the entrepreneur for optimizing resource use, maximizing profits and enhancing the efficiency of running the enterprise. So he engages himself in producing and marketing products. He has the simple goal of making the unit economically viable and sustainable.

Hence managing the enterprise assumes greater importance to achieve efficiency and to make profits on a continuous basis. So managing a rural enterprise becomes the top priority of the entrepreneur. Organizing resources -men, money and materials for production, processing, packaging, and marketing of goods is the essence of managing an enterprise. Choosing and upgrading appropriate technology is also a key factor for the success of the enterprise.

In managing a rural enterprise, following aspects are considered as constituents of the unit: scale of operation, de-risking through trials, sourcing supply of inputs, working capital, operating cycle, adopting a gradual growth of production, supervising cash flows and quality control, using available idle capacity, managing waste, and checking pilferage.

Enterprise management is the process of planning, organizing, controlling and budgeting of the works of a rural enterprise. Enterprise management comprises various management practices - planning for long-term and short-term goals, organizing production or services, arranging working capital for operating cycles, coordination of all enterprise activities, marketing, decision-making, delegating, controlling, monitoring and supervising, managing cash flows and finance management, book-keeping including writing balance sheet and income statement for budgeting.

a. PRIMARY MANAGEMENT FUNCTIONS

Whenever a new entrepreneur attempts at launching a new venture - a small industry or an enterprise or business in rural areas, she needs to understand the key functions of running and managing enterprise to attain entrepreneurial success.

The new entrepreneur has to have a clear vision for his enterprise and plan for achieving long-term goals. So planning is the most essential of all the primary management functions. The decision-making about the choice of product line and technology to be used is also very important. Then organizing production /services is another essential aspect that the entrepreneur has to think of. Organizing involves resourcing the enterprise, which includes arranging for men, money and material resources for starting production work. Staffing, i.e., recruiting and selecting suitable manpower to run the enterprise, is yet another primary aspect for the entrepreneur-manager.

The primary management functions include most essential functions, such as planning, decision-making, organizing and staffing.


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Planning –

Planning is a process of setting goals and a suitable course of action for achieving the enterprise goals. Planning is done at two levels: strategic and operational levels.

Strategic Planning: When an entrepreneur adopts a clear long-term goal with a clear vision and well expressed and articulated mission statement for his enterprise, the entrepreneur is said to be practicing strategic planning.

In the small-scale industries and rural enterprises, there is very limited scope to adopt systematic planning and adherence to strategies. The management process is essentially adaptive in nature. Like in medium and large-scale industries, they cannot afford to adopt a predictive management process, which involves setting objectives, formulating policies, drawing up strategies to realize the set objectives. However, a rural entrepreneur is advised to adopt a strategic planning process at least to set long-term goals.

The small scale units with their need to adopt an adaptive process of management perhaps have to depend on primary relationships like close friendships or kinship ties for their management functions. Because of the adaptive nature of management, small-scale units do not permit professionalism to a great extent.

Operational Planning:

Rural entrepreneurs usually adopt operational planning process in achieving their enterprises' short-term goals. Since the daily activities related to enterprise are within their immediate control, the rural entrepreneurs plan them well and also execute their plans quite satisfactorily. Since a rural entrepreneur usually starts an enterprise for which he/she has quite adequate knowledge, skills, and competencies, she successfully follows her/his daily operational plans in running the rural enterprise.

Decision-Making:

Usually every rural entrepreneur takes several decisions, on a regular basis, for handling daily operations of production, assessing the sale volumes for production, assessing working capital requirements, maintaining quality of\products or services, reducing costs, increasing profits, etc. Appropriate decision-making is the hallmark of successful entrepreneurs. An element of risk taking willingness of an entrepreneur plays a key role in taking right decisions. Usually the decisions taken would prove to be right or wrong only after the results start coming and after assessing the consequences.

Product Choice:

Entrepreneurs make several decisions about product choice. When an entrepreneur attempts to make a difficult or complex product, say an electric mains switch, marketing it is relatively easier than the items which can be easily produced. Running around marketing of simple and easy products consumes more time and pays fewer dividends. Moreover, with difficult products in hand, the entrepreneur can even monopolize the market, while with simple products he/she faces heavy competition due to many players in the market.


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Technology Choice:

Appropriate choice of technology plays a significant role in getting better product quality and market share. A spice manufacturer had installed an imported machine that enabled him to powder the spices at low temperatures so that the quality is not affected, which otherwise normally happens with the indigenous machines because of heat generated in the grinding process. Costs may increase in such cases but it is the quality of final product that gets an entrepreneur the money back.

Successful entrepreneurs usually end up taking decisions that yield desired results and may prove to be right in retrospect. So, practicing appropriate decision-making in their enterprises may be one of the reasons for their entrepreneurial success.

Organizing Production/Services

A rural entrepreneur needs to organize the production process or service operations for achieving entrepreneurial success. So he/she starts installing the equipment and machinery, organizes space and sets up the enterprise according to the project proposal.

Managing a rural enterprise involves looking after production processes to ensure quality control and wastage reduction. So, technically trained entrepreneurs spend more time in close and direct supervision of the production process. Those people who bad prior experience of working in a product line also give special emphasis to production process. So, they assume that production is crucial part of small-scale enterprises and feel that time devoted to .production never goes waste.

The entrepreneur-manager also takes care of raw material supplies and studies the raw material market, explores for new dealers and spends a lot of time for getting better raw materials and components for the enterprise. The organizing function of managing a rural enterprise evolves into an expertise and specialized field for entrepreneurs because this is one area of enterprise control where costs can be controlled.

Adequate experience and enough knowledge about all the raw material components required and their sources to get them at competitive prices is another essential feature of successful management of an enterprise. Getting to know the reliable supplier of raw materials does not happen in a day or two. It involves many trials and tests and is quite painstaking. A good manager believes in simple truths: "No pains, no gains!"

Staffing

An entrepreneur, in an attempt to launch a new enterprise, creates employment not only for himself but also for many others - skilled as well as unskilled labour. The staff including workers, technicians, mechanics, foremen, supervisors, managers, etc., is the most essential of all resources for running the production process and realizing the dream project of the enterprise.

Recruiting and selecting the staff: This is most critical aspect for the entrepreneur who has to select only those people who not only provide necessary skills and competencies for the enterprise and but also share her/his dream, values, standards of excellence and quality products or services. But getting the required people is always a difficult task for the entrepreneurs.

Managerial Staff: They usually take in a few of their own family members in management cadre for many reasons, such as convenience, familiarity, understanding and being less risky. But the


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experience has shown that this has yielded mixed results. In some cases, the relatives managed to cooperate with each other, while in others, tensions caused even closure of the enterprises. Most of the entrepreneurs depend on the primary relationships because they adopt an adaptive mode of management, which may not allow for professionalism to a great extent.

Retired government officials or middle-aged persons offer their services for managerial jobs in small industries, but usually prove to be misfits due to unrealistic expectations and mismatched performance standards.

Most of the managerial staffs possess very little experience as the entrepreneurs of small-scale industries find it difficult to attract experienced managerial personnel. They often learn their job according to the exigencies without much prior practical training.

Due to shortage of management staff, it is imperative for the entrepreneur-owner to also handle other's jobs to ensure that the work does not get held up in case someone is absent.

Managers have also to be recruited suiting their abilities and temperament. A good manager diagnoses the problem objectively and does not get carried away by emotions and tempers. Similarly the capable and competent supervisors and foremen on the shop floor make a great difference in production performance and quality control.

Training the unskilled labour

b. PRODUCTION MANAGEMENT FUNCTIONS

: Getting the skilled labour may become difficult as the better skilled people may not opt for working in a rural industry. But the unskilled labour may take long time as they learn everything on the job and through experience may acquire necessary skills. In such cases, where skilled labour are hired from outside, they may soon quit for better opportunities elsewhere. So when these people leave the enterprise, the lower level unskilled labour may take over operations with mixed results.

In the process, the enterprise slows down and suffers.

The lower skilled or unskilled labour force are usually not provided any technical training for the fear of losing them as they may leave for better options after acquiring the training. Adequate specialized training needs to be given to the employed man power for running the machinery in order to develop masters of some specific tasks. Employed staffs need to be observed critically for their competencies and weaknesses and they need to be assigned tasks accordingly, and developed appropriately to become experts in a particular field. Otherwise, the employee may become jack-of-all-trades but master of none.

The production management functions include those functions in running the enterprise, such as production management, arranging working capital for operating cycles, assessing the break-even point, and marketing of products/services.

Production Management

Production management is the process of arranging and allocating work, men, money, and material resources in such a structured manner to achieve the twin goals of an enterprise - reducing costs and increasing profits. Once an enterprise is set up, i.e., once the entrepreneur has organized space,


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machinery, equipment, and other fixed assets, and also recruited and selected required work force, she would start production. She/he is ready and set to start operations of her/his enterprise.

The entrepreneur needs working capital for starting production. She tries to understand the operating cycles of production assesses working capital requirements and sets about producing goods. So s/he needs to understand operating cycle, Working capital, etc.

Then the new entrepreneur would make attempts at production, engages in trial production- and adopts a pricing policy based on the costing of making the products

Working Capital: An entrepreneur needs finance for various operating expenses. She needs to buy raw materials, consumables, packaging materials, etc., and needs money for salary and wages, rent, premium and other services. So, in order to cover all these, expenses she would need money, which is known as the working capital.

This money can be recovered once the entrepreneur sells the finished goods. Till that time, the funds gets locked up in the production process. So, working capital can be defined as the amount of capital perpetually locked up in the form of current assets viz. raw materials, work-in-progress, finished goods, credit may lead to wrong decisions and result in a chaos in the enterprise, which tin be easily avoided given and cash required to sustain a specified level of activity in terms of production and sales.

To find out the requirement of working capital, one needs to understand the concept of operating cycle.

Operating Cycle: One needs to buy and maintain the stock of raw materials for a certain minimum period. This will depend upon various factors like nearness of the market, cost of procurement, availability of the raw materials and their shelf life. The stocking period will vary from a day to even 5-6 months.

To convert the raw material into finished products will also take certain time. This will depend upon the process involved and timely availability of all the needed resources.

Once the product is ready it has to reach the buyers and in return the sale proceeds are to be collected. This also takes some time depending upon the demand and terms of sales.

The time taken for all the three stages above, i.e., the stocking period, production time and sales realization time put together constitute an operating cycle of the business. The working capital is the total funds required to meet all the expenses of one operating cycle.

Usually, the small entrepreneurs consider the production expenses only as working capital. They neither consider the stocking period nor presume the sales realization time. So it is very important to understand the concept of operating cycle and calculate the working capital required for the entire period. And working capital is the sum total of all operating expenses for the period of one operating cycle.

Working capital management is the most dynamic concept of financial management in an enterprise. Effective working capital management would lead to:

a) Lower investment of finance in working capital for a given activity level.


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b) Effective management of cash, which is an idle investment.

C) Reduction in cost of production as a result of lower investment of finance in working capital.

Operating cycle should be as fast as possible so that the working capital is required for only a short period of time as it incurs interest costs. Faster operating cycles also enable more number of operating cycles and greater volume of production.

Marketing Management

Marketing is perhaps the most crucial of all management functions in rural enterprise management. If the entrepreneur can understand the preferences of customers and adopts an effective strategy for marketing and selling, distributes products and services directly or through agencies to customers, then probability of success is very high. A good entrepreneur makes prior agreements for assured marketing and adopts an effective marketing strategy and thus earns profits through marketing.

Marketing involves assessment of the needs of customers, a good pricing policy, promotional and advertising approach and distribution system, and finally good profit.

Hence, a customer is the focus point of all marketing management and strategies.

The customers decide:

a) What they want and need,

b) What they will pay for the product or service to satisfy that need, and

c) Where and from whom they will buy it.

Hence the customer is focused in marketing and promotion strategies. The entrepreneur needs to understand that marketing is the backbone of one's enterprise as this alone can bring in cash for further production and sustenance.

Since marketing is assumed to be crucial to entrepreneurial success, marketing management needs to be taken up ardently by the new entrepreneurs.

c. FINANCIAL MANAGEMENT FUNCTIONS

The financial management functions include those functions that deal with handling cash and finances, costing, pricing, break-even analysis, managing cash flows, accounting and book-keeping, writing a balance sheet and income statement for budgeting.

Financial management is a very important area of control. It involves management and long-term finance for establishing enterprise, expansion and growth; as well as short-term finance for getting working capital. Proper estimation and management of finances for the enterprise are necessary for the success of any enterprise.

Costing


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An entrepreneur needs to understand the role of both these costs in fixing prices for finished goods. While the direct costs for each product unit increase proportionately, the indirect costs will generally decrease with increase in number of product units manufactured. Care should be taken to include the costs incurred in production wastages, loss in handling and transit, customer rejections, after sales service, loss in man-hours, transportation costs, distribution and sales costs, local taxes, etc., as these directly affect the price of finished products. An entrepreneur-manager needs to calculate these costs carefully in order to arrive at reasonable profits.

Pricing

The process of setting a price for the finished products poses a great challenge to a new entrepreneur. Price of the products or services depends a great deal on the cost of doing business. The cost of sales tells what to charge to stay in business. This is known as setting the floor price; or the minimum price. The competition will set the ceiling price, or the maximum price. The entrepreneur needs to charge enough for the product or services so that both fixed costs and variable costs will be covered by sales and a small profit is also derived. If prices are set too high, it may not be possible to attract sufficient business to cover fixed-costs; if prices are too low, the larger number of customers attracted may not still generate enough revenue to cover all costs.

Break-even Analysis

A break-even analysis can and should be done to check the reasonableness of the prices fixed. Break-even helps to take fixed costs and variable costs into account when fixing the prices. Initially, in the first and second operating cycles of production, it may not be possible for the entrepreneur to break-even but over time the entrepreneur moves beyond break-even point and starts making profits. It is always better to reach break-even point sooner than later.

The break-even point is a valuable tool to analyze how much one needs to sell to make profits. If the entrepreneur knows approximately how much they needs to sell, they can order the proper amounts of stock of raw materials, produce, and find way to sell that much. Once these basic elements are identified and estimated, one can calculate the break-even point.

Breakeven analysis determines the point at which sales revenues equal production costs. The break-even point can also be defined in terms of physical units sold, or the level of capacity utilization at which sales revenues and production costs match each other. So entrepreneurs always attempt to utilize maximum capacity of their equipment, machinery and labour and reduce idle capacity utilization.

Cash Flows Management

The new entrepreneurs need to know as to what amount of money has come in and how money has gone out in a certain period. It will give them an idea whether the business is likely to yield profits and enable them to realistically forecast money movements. The money movement into and out of business is a matter to be controlled by the entrepreneur.

Cash flow refers to the actual movement of cash into and out of an enterprise. A cash flow statement is prepared for a few years, and it is usually sub-divided into the cash movements on a monthly basis for first two years and even on a daily basis in the initial stages.


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Cash inflow from sales depends on the method of payment to be expected. This is because credit trading has the effect of shifting cash flow into a later period than the date of actual sales. In cash outflow the actual payment is considered, depending on the credit terms arranged with the material suppliers, as this will allow payment some time after the delivery of raw material. If a business is to keep out of trouble, it must have enough cash inflow to pay day-to-day expenses like wages, suppliers, rent and electricity, etc.

Monitoring cash flows and ensuring smooth flow of cash forms one of the healthy practices of an entrepreneur. A healthy cash flow and finance management would ensure healthy enterprise and thereby entrepreneurial success.

Accounting and Book-keeping

Every new entrepreneur is advised to form a system of maintaining books of accounts and records from inception. Recording all accounts regularly is a routine work that may be monotonous and boring but its worth can only be seen in its absence. Absence of a system of accounting is one of the important reasons of failure. Accounts are eyes of business and show the economic condition and financial health of the business very clearly.

Book-keeping or maintaining a record of all accounts of the enterprise - the expenditure incurred, the wages, the payments due and the overall income-expenditure-profit details help the entrepreneur to assess the financial health and financial discipline of the enterprise.

If an entrepreneur is keeping all records of vouchers, bills, account slips, etc. in various cash books and registers, then she is practicing book-keeping for her/his enterprise and also running the enterprise in a systematic manner. Successful entrepreneurs resort to regular counting and book-keeping of their enterprises which provides ready data on finances and may guide them in making appropriate decisions and running their enterprises efficiently.

Balance Sheet: Balance Sheet describes the enterprise's financial condition at a given point in time, in terms of its assets, liabilities and net worth. The successful entrepreneurs usually write their balance sheets on a regular basis and may turn out to be good enterprise managers and hence achieve success in their entrepreneurial ventures. The unsuccessful entrepreneurs, more often than not, do not prepare any balance sheet whatsoever.

Income Statement:

Income statement summarizes the enterprise's financial capability. An entrepreneur, after all, works to earn an income from her/his enterprise. If she is not aware of how much she had earned over a period of time, she is not in a position to decide whether to continue or stop or change the course of action. Through an income statement, the entrepreneur will have a fair idea of the operational costs, cost of products sold, administrative expenses; taxes and interests paid, and the net income earned. The income statements of over; a period of years or cycles of production will also help the entrepreneur to actually know whether there are incremental gains or losses in her/his enterprise.

Effective financial management practices form the core of managing a rural enterprise. The rural entrepreneurs need to grasp the intricacies of costing, pricing and breakeven analysis in order to attain entrepreneurial success.


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SOURCES OF FUNDS

Normally an entrepreneur tries to meet at least part of the funds requirement from one’s own sources, which we call as capital of the promoter. He/she arrange this fund either from friends, family members or from own saving. In most cases it is founds that this funds is quit insufficient to run the business. Therefore he approaches various agencies for meeting the requirements.

The credit and landing agencies operating rural areas can be divided into two types:-

1) Institutional 2) Non- Institutional

The former comprise commercial banks, co-operative societies, development banks, regional rural banks and non banking financial companies. These institution operate in regulated environment and observe fixed norms & guidelines enumerated by the government. Since they are more amenable to policy prescriptions of government authorities they have fixed criteria on rate of interest, primary & collateral securities & selection procedures.

The non institutional agencies are lending agencies operating in non formal manner. They are mostly money lenders operating in rural areas. They are only lending agencies before the entry of institutional agencies. Rural people have easy access to these sources of finance, as there are no Rules & regulations guiding their activities. They charge very high rate of interest and many of them take away the entire property of the poor people which is pledge by them for granting loans of even very small amount.

Institutional financial is of three types:-

1) Banking Institutional:- Commercial banks, co-operative societies, Regional Rural Bank.

2) Development banks:- Small industries development bank of India(SIDBI) , National Bank of Agricultural and Rural Development Bank (NABARD), National Housing Bank (NHB)

3) Non banking financial companies

TYPES OF CREDIT FACILITIES AVAILABALE TO RURAL ENTREPRENEUR

Credit facilities can be fund based or non fund based. In case of non fund based facilities bank do not lend funds directly. They issue Letter of Guarantee and letter of Credit (LC), which are simply commitments on the part of the bank to pay for the borrower in case of contingencies.

Fund based facilities are those where banks have to land funds directly. It include

1) Cash Credit (for Working capital Requirement) 2) Term Loan (for appearing Fixed Assets) 3) Bridge Loan (short term finance)


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d. SUSTENANCE MANAGEMENT FUNCTIONS

Once the production process is on, the rural entrepreneurs need to concentrate their energy and efforts on sustaining the activities of the enterprise. The major management functions that would help sustain the enterprise are coordination, controlling, delegating and supervising.

Coordination

An entrepreneur is the technician, worker, manager, financer and the boss - all in one. S/he has to take care of all the activities involved in the raw material supply, production, quality control, packaging, marketing, budgeting, recycling funds and managing the enterprise, among others. So the likelihood of an entrepreneur being successful depends, on the way he or she coordinates all the activities of the enterprise. Thus, coordination is the process of integrating enterprise works in order to pursue entrepreneurial goals effectively.

Controlling

An entrepreneur takes steps to ensure that the actual activities of running enterprise conform to the plans and goals already set for the enterprise. If a production target is set, it has to be met within the specified time frame. Otherwise, delays may prove very costly. Thus the production process is monitored. This management practice is called 'controlling', which helps managers to monitor the effectiveness of their planning, organizing, decision-making, and actions. An essential part of controlling process is taking corrective actions, as and when needed, to achieve the entrepreneurial goals. In fact, it is the constant close supervision of the enterprise owner that helps in steering the enterprise in the right direction. In case, the enterprise is not being run in desired direction, the entrepreneur controls it, i.e. she sees if the enterprise goals are in sight and if not, changes the direction towards the set goals.

To enable better controlling of the enterprise, the enterprise follows the simple practices of monitoring the cash flows to and from the enterprise. Strict financial management practices help attain better control of the enterprise. Even close supervision and monitoring of production process helps in quality control.

Delegation

In the tiny units, the owner has to manage almost everything. Or she may have one of her/his family members or relative to help as an assistant. As the size of the unit grows the need for delegation of responsibility increases. When the scale of operation of an enterprise gets enlarged, the entrepreneur usually has to attend to various activities of the enterprise and is hard pressed for time. In such cases, she usually hands over some specific work to one of her/his employees or family members for monitoring and completion. This act of assigning work related to management coupled with formal authority and responsibility is called delegation. Entrepreneurs delegate work to others in order to manage the enterprise efficiently and successfully. In this process, the entrepreneur personally handles some of the most essential jobs and gets other less critical jobs done under her/his instruction and supervision.

Usually many entrepreneurs learn something about all the tasks of their enterprise. An entrepreneur who can handle all operations of one's unit is more likely to succeed only because she pays equal


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attention to all aspects of managing the enterprise. Moreover, she can easily diagnose what went wrong and where. Time management also assumes significance as proper distribution of time proportionately among all aspects of enterprise ensures success.

Many of the successful entrepreneurs, even though they delegate some specific works to supervisors in their enterprises, are not entirely happy with the process of delegation. They would insist that the responsibility still rests with them in ensuring the completion of some works and quality of products/services. To give an example, the poultry farmers rarely delegated the technical tasks like vaccination of birds at regular intervals as it involves high level of skill and its poor performance may result in high losses. On the other hand, a low skill task with low risks like 'daily feeding of birds' was often delegated to the workers.

Supervising

Supervision may be defined as the art of directing the effort or harnessing the energy of human resources of the enterprise for the attainment of enterprise goals. Supervision involves directing, delegating and controlling functions of a manager, Close and direct supervision is essential for maintaining quality control.

Quality Control: Quality conscientiousness is another aspect that fetches more monetary returns. Improving quality of products by redesigning and using better components is possible only when the entrepreneur herself/himself spends adequate time with workers on shop floor, diagnosing problems and immediately correcting them, and by getting directly involved in the manufacturing process.

To ensure quality, mid-way in the process of manufacturing various components, the entrepreneur conducts various tests, because improper components may not be useful to assemble better final products.


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8. PITFALLS IN MANAGING A RURAL ENTERPRISE

A promoter of a rural enterprise faces a plethora of problems, usually called 'teething troubles' when he/he sets up her/his enterprise. First, arranging working capital becomes the major task as she runs out of money to buy raw materials though she may not yet have earned any reputation in the market to get raw materials on credit. Similarly, she makes several production trials, refines the finished products, improves quality, attempts to set a price for her/his products, etc. In the process, she learns from the customers and distributors about the preferences and prices.

Common Pitfalls

A person who does not believe in long-term strategic plans but gets entangled in daily chores of running the enterprise usually meets with failure for lack of preparedness for future eventualities. Among rural entrepreneurs, the practice of strategic planning is found to be quite inadequate. Since the rural people, in general, have often fallen victims to vagaries of monsoons, prices and other uncertainties, they seldom venture to think of future plans and are usually ill-prepared for any contingencies. They were also found to be confusing the term strategic planning with daydreaming. The usual dictum is "Do not count your chickens before they are hatched!" But successful entrepreneurs believe in "Hope for the best, but prepare for the worst", and hence success. Most of the managerial staffs recruited have very little experience. They often learn their job according to the exigencies without much prior practical training. However, the scope for specialization is limited. Due to shortage of managerial staff, it is imperative for one to handle other's jobs to ensure that work does not get held up in case someone is absent. The managerial jobs are plural in nature to a greater degree in the small-scale sector than in the medium and large-scale industries.

In cases where the scale of operation of an enterprise has increased, small-scale industries are also started as joint ventures with two-or more partners. But partnerships may yield mixed results. While some units survive because of committed partnerships, others have failed due to lack of understanding between partners. A good deal of mutual faith, maturity and complementary support are essential for successful partnership in enterprises. An entrepreneur needs to look beyond into future with long-term goals in mind. A narrow outlook, inferiority complex and lack of patience and lack of exposure will be great impediments for enterprise development. Merely thinking of limited gains will not make a successful entrepreneur. Suspicion and jealousy may not find place in a partnership venture.

Most of the rural entrepreneurs are not serious with the practice of organizing resources for production/services for their enterprises. Usually, they take it for granted this crucial issue of organizing inputs, money and other key resources because they take up only familiar entrepreneurial activities on which they have adequate command and knowledge.

They find organizing of resources as an easy and routine affair and conduct themselves in a 'business as usual' manner. Most of the entrepreneurs supervise their production work by themselves. However, they have to learn to delegate various responsibilities to their partners and subordinates. Otherwise, they tend to get bogged down in one aspect of production at the cost of ignoring some other crucial aspect of managing the enterprise and so productivity may decline.

The small entrepreneurs usually do not prepare long-term plans. They often believe that their ideas cannot be implemented for want of resources. However, it is the inadequate understanding of the intricacies of business and lack of proper planning which hampers their dreams. Usually they learn the


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basic principles of financial management from their own mistakes. In the process, many of them bum their fingers and get disheartened in the beginning.

Even if they know their job and business skills, they are not able to reflect upon the mistakes of the past. Quite often in the absence of records, the access to formal credit facilities is also denied. So it is important for them to learn and adopt the principles of financial management as well as maintain the necessary records.

Managing cash flows poses a great challenge for the entrepreneurs. Delayed cash flow is a big pitfall which may not be avoided by even the best of entrepreneurs. Similarly large gaps are seen in the understanding the operating cycle and working capital requirements by the new entrepreneurs. An effective manager-entrepreneur will take special care of cash flows in running one's enterprise.

Documents

Rural Entrepreneurship in India