UNIT-1

ENTREPRENEURSHIP
 ENTREPRENEUR
An entrepreneur is a person who starts an enterprise. He searches for change and responds to
it. A number of definitions have been given of an entrepreneur- The economists view him as
a fourth factor of production along with land labour and capital.

The sociologists feel that certain communities and cultures promote entrepreneurship like for
example in India we say that Gujaratis and Sindhis are very enterprising. Still others feel that
entrepreneurs are innovators who come up with new ideas for products, markets or
techniques. To put it very simply an entrepreneur is someone who perceives opportunity,
organizes resources needed for exploiting that opportunity and exploits it.

Computers, mobile phones, washing machines, ATMs, Credit Cards, Courier Service, and
Ready to eat Foods are all examples of entrepreneurial ideas that got converted into products
or services.

Definitions of an entrepreneur

Stems: from the French word ‘entrependre’ meaning one who undertakes or one who is a ‘go-
between’

1725: Richard Cantillon: An entrepreneur is a person who pays a certain price for a product to
resell it at an uncertain price, thereby making decisions about obtaining and using the resources
while consequently admitting the risk of enterprise.

1803: J.B. Say: An entrepreneur is an economic agent who unites all means of production- land
of one, the labour of another and the capital of yet another and thus produces a product. By
selling the product in the market he pays rent of land, wages to labour, interest on capital and
what remains is his profit. He shifts economic resources out of an area of lower and into an area
of higher productivity and greater yield.
  ENTREPRENEURSHIP

Entrepreneurship can be described as a process of action an entrepreneurundertakes to establish

his enterprise. Entrepreneurship is a creative activity. It is the ability to create and build
something from practically nothing. It is a knack of sensing opportunity where others see chaos,
contradiction and confusion. Entrepreneurship is the attitude of mind to seek opportunities, take
calculated risks and derive benefits by setting up a venture. It comprises of numerous activities
involved in conception, creation and running an enterprise.
According to Peter Drucker Entrepreneurship is defined as ‘a systematic innovation, which
consists in the purposeful and organized search for changes, and it is the systematic analysis of
the opportunities such changes might offer for economic and social innovation.’

Difference between an Entrepreneur and a Manager –

Explained!
The major points of distinction between the two are presented in following Table 1.3:

Table 1.3: Difference between an Entrepreneur and a Manager:

Bases of Entrepreneur Manager

Difference

1. Motive The main motive of But, the main motive of a

an entrepreneur is to manager is to render his
start a venture by services in an enterprise
setting up an already set up by
enterprise. He someone else i.e.,
understands the entrepreneur.
venture for his
personal
gratification.

2. Status An entrepreneur is A manager is the servant

 the owner of the in the enterprise owned
enterprise. by the entrepreneur.

3. Risk Bearing An entrepreneur A manager as a servant

being the owner of does not bear any risk
the enterprise involved in the
assumes all risks enterprise.
and uncertainty
involved in running
the enterprise.

4. Rewards The reward an A manager gets salary as

entrepreneur gets reward for the services
for bearing risks rendered by him in the
involved in the enterprise. Salary of a
enterprise is profit manager is certain and
which is highly fixed.
uncertain.

5. Innovation Entrepreneur But, what a manager

himself thinks over does is simply to execute
what and how to the plans prepared by the
produce goods to entrepreneur. Thus, a
meet the changing manager simply
demands of the translates the
customers. Hence, entrepreneur’s ideas into
he acts as an practice.
innovator also
called a ‘change
agent’

6. Qualifications An entrepreneur On the contrary, a

needs to possess manager needs to
qualities and possess distinct
qualifications like qualifications in terms of
high achievement sound knowledge in
motive, originality management theory and
in thinking, practice.
foresight, risk -
bearing ability and
so on.
After going through the above points of distinctions, it is clear that an entrepreneur differs from a
manager. At times, an entrepreneur can be a manager also, but a manager cannot be an
entrepreneur. After all, an entrepreneur is an owner, but a manager is a servant.

ROLE OF ENTREPRENEURSHIP IN

ECONOMIC DEVELOPMENT

The industrial health of a society depends on the level of entrepreneurship existing in it. A
country might remain backward not because of lack of natural resources or dearth of capital [as it
is many times believed] but because of lack of entrepreneurial talents or it inability to tap the
latent entrepreneurial talents existing in that society. Entrepreneurs historically have altered the
direction of national economies, industry or markets- Japan, Singapore, Korea, Taiwan to name a
few.

 ENTREPRENEURSHIP AND ECONOMIC DEVELOPMENT

Entrepreneurship is basically concerned with creating wealth through production of goods and
services. This results in a process of upward change whereby the real per capita income of a
country rises overtime or in other words economic development takes place. Thus
entrepreneurial development is the key to economic development. In fact it is one of the most
critical inputs in the economic development of a region. It speeds up the process of activating
factors of production leading to a higher rate of economic growth, dispersal of economic
activities and development of backward regions. If a region is unable to throw up a sufficient
number of entrepreneurs then alien entrepreneurs usually step in to provide goods and services
needed by the people. However the profits earned by these entrepreneurs are usually not
ploughed back but repatriated to their place of origin. As a result development in that region
cannot take place. Dr. M.M.
Akhori refers to this practice as ‘The Leech Effect’. The above reiterates the importance of
entrepreneurship development for fuelling economic growth of a region.
Entrepreneurship begets and also injects entrepreneurship by starting a chain reaction when the
entrepreneur continuously tries to improve the quality of existing goods and services and add
new ones. E.g. when computers came into the market there was continuous improvement in the
models, their functions etc. like first generation computers, personal computers, laptops,
palmtops etc. Not only had this fostered the development of the software industry, computer
education institutes, computer maintenance and stationery units etc. but also other industries like
banking, railways, education, travel, films, medical and legal transcriptions, business process
outsourcing [BPOs] etc. In this manner by harnessing the entrepreneurial talent a society comes
out of traditional lethargy to modern industrial culture. India needs entrepreneurs to capitalize on
new opportunities and to create wealth and new jobs.

 Factors affecting Entrepreneurship Development

Economic Factors

Economic environment exercises the most direct and immediate influence on entrepreneurship.
This is likely because people become entrepreneurs due to necessity when there are no other jobs
or because of opportunity.

The economic factors that affect the growth of entrepreneurship are the following:

1. Capital

Capital is one of the most important factors of production for the establishment of an enterprise.
Increase in capital investment in viable projects results in increase in profits which help in
accelerating the process of capital formation. Entrepreneurship activity too gets a boost with the
easy availability of funds for investment.

Availability of capital facilitates for the entrepreneur to bring together the land of one, machine
of another and raw material of yet another to combine them to produce goods. Capital is
therefore, regarded as lubricant to the process of production.

France and Russia exemplify how the lack of capital for industrial pursuits impeded the process
of entrepreneurship and an adequate supply of capital promoted it.
2. Labor

Easy availability of right type of workers also effect entrepreneurship. The quality rather than
quantity of labor influences the emergence and growth of entrepreneurship. The problem of labor
immobility can be solved by providing infrastructural facilities including efficient transportation.

The quality rather quantity of labor is another factor which influences the emergence of
entrepreneurship. Most less developed countries are labor rich nations owing to a dense and even
increasing population. But entrepreneurship is encouraged if there is a mobile and flexible labor
force. And, the potential advantages of low-cost labor are regulated by the deleterious effects of
labor immobility. The considerations of economic and emotional security inhibit labor mobility.
Entrepreneurs, therefore, often find difficulty to secure sufficient labor.

3. Raw Materials

The necessity of raw materials hardly needs any emphasis for establishing any industrial activity
and its influence in the emergence of entrepreneurship. In the absence of raw materials, neither
any enterprise can be established nor can an entrepreneur be emerged

It is one of the basic ingredients required for production. Shortage of raw material can adversely
affect entrepreneurial environment. Without adequate supply of raw materials no industry can
function properly and emergence of entrepreneurship to is adversely affected.

In fact, the supply of raw materials is not influenced by themselves but becomes influential
depending upon other opportunity conditions. The more favorable these conditions are, the more
likely is the raw material to have its influence of entrepreneurial emergence.

4. Market

The role and importance of market and marketing is very important for the growth of
entrepreneurship. In modern competitive world no entrepreneur can think of surviving in the
absence of latest knowledge about market and various marketing techniques.

The fact remains that the potential of the market constitutes the major determinant of probable
rewards from entrepreneurial function. Frankly speaking, if the proof of pudding lies in eating,
the proof of all production lies in consumption, i.e., marketing.

The size and composition of market both influence entrepreneurship in their own ways.
Practically, monopoly in a particular product in a market becomes more influential for
entrepreneurship than a competitive market. However, the disadvantage of a competitive market
can be cancelled to some extent by improvement in transportation system facilitating the
movement of raw material and finished goods, and increasing the demand for producer goods.
5. Infrastructure

Expansion of entrepreneurship presupposes properly developed communication and

transportation facilities. It not only helps to enlarge the market, but expand the horizons of
business too. Take for instance, the establishment of post and telegraph system and construction
of roads and highways in India. It helped considerable entrepreneurial activities which took place
in the 1850s.

Apart from the above factors, institutions like trade/ business associations, business schools,
libraries, etc. also make valuable contribution towards promoting and sustaining
entrepreneurship’ in the economy. You can gather all the information you want from these
bodies. They also act as a forum for communication and joint action.

Social Factors

Social factors can go a long way in encouraging entrepreneurship. In fact it was the highly
helpful society that made the industrial revolution a glorious success in Europe. Strongly affect
the entrepreneurial behavior, which contribute to entrepreneurial growth. The social setting in
which the people grow, shapes their basic beliefs, values and norms.

The main components of social environment are as follows:

1. Caste Factor

There are certain cultural practices and values in every society which influence the’ actions of
individuals. These practices and value have evolved over hundred of years. For instance,
consider the caste system (the varna system) among the Hindus in India. It has divided the
population on the basis of caste into four division. The Brahmana (priest), the Kshatriya
(warrior), the Vaishya (trade) and the Shudra (artisan): It has also defined limits to the social
mobility of individuals.

By social mobility’ we mean the freedom to move from one caste to another. The caste system
does not permit an individual who is born a Shridra to move to a higher caste. Thus, commercial
activities were the monopoly of the Vaishyas. Members of the three other Hindu Varnas did not
become interested in trade and commence, even when India had extensive commercial inter-
relations with many foreign countries. Dominance of certain ethnical groups in entrepreneurship
is a global phenomenon
2. Family Background

This factor includes size of family, type of family and economic status of family. In a study by
Hadimani, it has been revealed that Zamindar family helped to gain access to political power and
exhibit higher level of entrepreneurship.

Background of a family in manufacturing provided a source of industrial entrepreneurship.

Occupational and social status of the family influenced mobility. There are certain circumstances
where very few people would have to be venturesome. For example in a society where the joint
family system is in vogue, those members of joint family who gain wealth by their hard work
denied the opportunity to enjoy the fruits of their labor because they have to share their wealth
with the other members of the family.

3. Education

Education enables one to understand the outside world and equips him with the basic knowledge
and skills to deal with day-to-day problems. In any society, the system of education has a
significant role to play in inculcating entrepreneurial values.

In India, the system of education prior to the 20th century was based on religion. In this rigid
system, critical and questioning attitudes towards society were discouraged. The caste system
and the resultant occupational structure were reinforced by such education. It promoted the idea
that business is not a respectable occupation. Later, when the British came to our country, they
introduced an education system, just to produce clerks and accountants for the East India
Company, The base of such a system, as you can well see, is very anti-entrepreneurial.

Our educational methods have not changed much even today. The emphasis is till on preparing
students for standard jobs, rather than marking them capable enough to stand on their feet.

4. Attitude of the Society

A related aspect to these is the attitude of the society towards entrepreneurship. Certain societies
encourage innovations and novelties, and thus approve entrepreneurs’ actions and rewards like
profits. Certain others do not tolerate changes and in such circumstances, entrepreneurship
cannot take root and grow. Similarly, some societies have an inherent dislike for any money-
making activity. It is said, that in Russia, in the nineteenth century, the upper classes did not like
entrepreneurs. For them, cultivating the land meant a good life. They believed that rand belongs
to God and the produce of the land was nothing but god’s blessing. Russian folk-tales, proverbs
and songs during this period carried the message that making wealth through business was not
right.
5. Cultural Value

Motives impel men to action. Entrepreneurial growth requires proper motives like profit-making,
acquisition of prestige and attainment of social status. Ambitious and talented men would take
risks and innovate if these motives are strong. The strength of these motives depends upon the
culture of the society. If the culture is economically or monetarily oriented, entrepreneurship
would be applauded and praised; wealth accumulation as a way of life would be appreciated. In
the less developed countries, people are not economically motivated. Monetary incentives have
relatively less attraction. People have ample opportunities of attaining social distinction by non-
economic pursuits. Men with organizational abilities are, therefore, not dragged into business.
They use their talents for non-economic end.

 Psychological Factors

Many entrepreneurial theorists have propounded theories of entrepreneurship that concentrate

especially upon psychological factors. These are as follows :

1. Need Achievement

The most important psychological theories of entrepreneurship was put forward in the early)
960s by David McClelland. According to McClelland ‘need achievement’ is social motive to
excel that tends to characterise successful entrepreneurs, especially when reinforced by cultural
factors. He found that certain kinds of people, especially those who became entrepreneurs, had
this characteristic. Moreover, some societies tend to reproduce a larger percentage of people with
high ‘need achievement’ than other societies. McClelland attributed this to sociological factors.
Differences among societies and individuals accounted for ‘need achievement’ being greater in
some societies and less in certain others.

The theory states that people with high need-achievement are distinctive in several ways. They
like to take risks and these risks stimulate them to greater effort. The theory identifies the factors
that produce such people. Initially McClelland attributed the role of parents, specially the
mother, in mustering her son or daughter to be masterful and self-reliant. Later he put less
emphasis on the parent-child relationship and gave more importance to social and cultural
factors. He concluded that the ‘need achievement’ is conditioned more by social and cultural
reinforcement rather than by parental influence and such related factors.

2. Withdrawal of Status Respect

There are several other researchers who have tried to understand the psychological roots of
entrepreneurship. One such individual is Everett Hagen who stresses the-psychological
consequences of social change. Hagen says, at some point many social groups experience a
radical loss of status. Hagen attributed the withdrawal of status respect of a group to the genesis
of entrepreneurship.

Hage believes that the initial condition leading to eventual entrepreneurial behavior is the loss of
status by a group. He postulates that four types of events can produce status withdrawal:

1. i. The group may be displaced by force;

2. ii. It may have its valued symbols denigrated;
3. iii. It may drift into a situation of status inconsistency; and
4. iv. It may not be accepted the expected status on migration in a new society.

3. Motives

Other psychological theories of entrepreneurship stress the motives or goals of the entrepreneur.
Cole is of the opinion that besides wealth, entrepreneurs seek power, prestige, security and
service to society. Stepanek points particularly to non-monetary aspects such as independence,
persons’ self-esteem, power and regard of the society.

On the same subject, Evans distinguishes motive by three kinds of entrepreneurs

1. Managing entrepreneurs whose chief motive is security.

2. Innovating entrepreneurs, who are interested only in excitement.
3. Controlling entrepreneurs, who above all otter motives, want power and authority.

Finally, Rostow has examined inter gradational changes in the families of entrepreneurs. He
believes that the first generation seeks wealth, the second prestige and the third art and beauty.

4. Others

Thomas Begley and David P. Boyd studied in detail the psychological roots of entrepreneurship
in the mid-1980s. They came to the conclusion that entrepreneurial attitudes based on
psychological considerations have five dimensions:

1. First came ‘need-achievement’ as described by McClelland. In all studies of successful

entrepreneurs a high achievement orientation is invariably present.
2. The second dimension that Begley and Boyd call ‘locus of control’ This means that the
entrepreneur follows the idea that he can control his own life and is not influenced by
factors like luck, fate and so on. Need-achievement logically implies that people can
control their own lives and are not influenced by external forces.
3. The third dimension is the willingness to take risks. These two researchers have come to
the conclusion that entrepreneurs who take moderate risks earn higher returns on their
assets than those who take no risks at all or who take extravagant risks.
 4. Tolerance is the next dimension of this study. Very few decisions are made with
complete information. So all business executives must, have a certain amount of
tolerance for ambiguity.
5. Finally, here is what psychologists call ‘Type A’ behavior. This is nothing but “a chronic,
incessant struggle to achieve more and more in less and less of time” Entrepreneurs are
characterize by the presence of ‘Type A’ behavior in all their endeavors.

 Characteristics of a Successful Entrepreneur

Some business experts suggest that the entrepreneurial drive is innate, a trait acquired at birth,
while others believe that anyone can become an entrepreneur. Whether a person is born to it or
develops it, there are characteristics and traits required for successful entrepreneurship
including:

 Passion - Talk to successful entrepreneurs and you'll nearly always hear the word passion
when they describe what they do. Following your passion is one of the best predictors of
success.
 Independent thinking - Entrepreneurs often think outside the box and aren't swayed by
others who might question their ideas.
 Optimism - It's difficult to succeed at anything if you don't believe in a good outcome.
Entrepreneurs are dreamers and believe their ideas are possible, even when they seem
unattainable.
 Self-confidence - This is not to say entrepreneurs never have self-doubt, but they're able
to overcome it, and believe they can achieve their goal.
 Resourceful and problem solvers - Lack of assets, knowledge, and resources are
common, but entrepreneurs are able to get what they need or figure out how to use what
they've got in order to reach their business goals.They never let problems and challenges
get in the way, and instead find ways to achieve success despite hardships.
 Tenacity and ability to overcome hardship - Entrepreneurs don't quit at the first,
second or even hundredth obstacle. For them, failure is not an option, so they continue to
work toward success, even when things go wrong.
  Vision - Some of the more stringent definitions of entrepreneurship include vision as a
necessary element. It helps to know your end goal when you start. Further, vision is the
fuel that propels you forward toward your goal.
 Focus - It's easy in this fast paced, constant info-in-your-face world to get distracted.
This is especially true for business start-ups that often get side-tracked by the ,shiny
object syndrome (i.e. products and services that promise fast results), or bogged down in
unimportant busy work. Successful entrepreneurs are focused on what will bring results.
 Action oriented - Entrepreneurs don't expect something from nothing and they don't wait
for things to happen. They are doers. They overcome challenges and avoid
procrastination.

 Qualities of a Successful Entrepreneur

1. Disciplined

These individuals are focused on making their businesses work, and eliminate any hindrances or
distractions to their goals. They have overarching strategies and outline the tactics to accomplish
them. Successful entrepreneurs are disciplined enough to take steps every day toward the
achievement of their objectives.

2. Confidence

The entrepreneur does not ask questions about whether they can succeed or whether they are
worthy of success. They are confident with the knowledge that they will make their businesses
succeed. They exude that confidence in everything they do.

3. Open Minded

Entrepreneurs realize that every event and situation is a business opportunity. Ideas are
constantly being generated about workflows and efficiency, people skills and potential new
businesses. They have the ability to look at everything around them and focus it toward their
goals.

4. Self Starter
Entrepreneurs know that if something needs to be done, they should start it themselves. They set
the parameters and make sure that projects follow that path. They are proactive, not waiting for
someone to give them permission.

5. Competitive

Many companies are formed because an entrepreneur knows that they can do a job better than
another. They need to win at the sports they play and need to win at the businesses that they
create. An entrepreneur will highlight their own company’s track record of success.

6. Creativity

One facet of creativity is being able to make connections between seemingly unrelated events or
situations. Entrepreneurs often come up with solutions which are the synthesis of other items.
They will repurpose products to market them to new industries.

7. Determination

Entrepreneurs are not thwarted by their defeats. They look at defeat as an opportunity for
success. They are determined to make all of their endeavors succeed, so will try and try again
until it does. Successful entrepreneurs do not believe that something cannot be done.

8. Strong people skills

The entrepreneur has strong communication skills to sell the product and motivate employees.
Most successful entrepreneurs know how to motivate their employees so the business grows
overall. They are very good at highlighting the benefits of any situation and coaching others to
their success.

9. Strong work ethic

The successful entrepreneur will often be the first person to arrive at the office and the last one to
leave. They will come in on their days off to make sure that an outcome meets their expectations.
Their mind is constantly on their work, whether they are in or out of the workplace.

10. Passion

Passion is the most important trait of the successful entrepreneur. They genuinely love their
work. They are willing to put in those extra hours to make the business succeed because there is
a joy their business gives which goes beyond the money. The successful entrepreneur will
always be reading and researching ways to make the business better.
 UNIT-2

 Functions of Entrepreneurs in Economic Development of

Country

1. Employment opportunities

An entrepreneur employs labour for managing their business activities and provides employment
opportunities to a large number of people. They remove unemployment problem.

2. Balanced Regional Development

Government promotes decentralized development of industries as most of the incentives are

granted for establishing industries in backward and rural areas. Thus, the entrepreneurs to avail
the benefits establish industries in backward and rural areas.

They remove regional disparities and bring balanced regional development. They also help to
reduce the problems of congestion, slums, sanitation and pollution in cities by providing
employment and income to people living in rural areas. They help in improving the standard of
living of the people residing in suburban and rural areas.

3. Mobilization of Local Resources

Entrepreneurs help to mobilize and utilize local resources like small savings and talents of
relatives and friends, which might otherwise remain idle and unutilized. Thus they help in
effective utilization of resources.

4. Optimization of Capital

Entrepreneurs aim to get quick return on investment. They act as a stabilizing force by providing
high output capital ratio as well as high employment capital ratio.

5. Promotion of Exports

Entrepreneurs reduce the pressure on the country’s balance of payments by exporting their goods
they earn valuable foreign exchange through exports.
6. Consumer Demands

Entrepreneurs produce a wide range of products required by consumers. They meet the demand
of the consumers without creating a shortage for goods.

7. Social Advantage

Entrepreneurs help in the development of the society by providing employment to people and
paves for independent living They encourage democracy and self-governance. They are adept in
distributing national income in more efficient and equitable manner among the various
participants of the society.

8. Increase per capita income

Entrepreneurs help to increase the per capita income of the country in various ways and facilitate
development of backward areas and weaker sections of the society.

9. Capital formation

A country can attain economic development only when there is more amount of investment and
production. Entrepreneurs help in channelizing their savings and savings of the public to
productive resources by establishing enterprises. They promote capital formation by
channelizing the savings of public to productive resources.

10. Growth of capital market

Entrepreneurs raise money for running their business through shares and debentures. Trading of
shares and debentures by the public with the help of financial services sector leads to capital
market growth.

11. Growth of infrastructure

The infrastructure development of any country determines the economic development of a

country, Entrepreneurs by establishing their enterprises in rural and backward areas influence the
government to develop the infrastructure of those areas.

12. Development of Trader

Entrepreneurs play an important role in the promotion of domestic trade and foreign trade. They
avail assistance from various financial institutions in the form of cash credit, trade credit,
overdraft, short term loans, secured loans and unsecured loans and lead to the development of the
trade in the country.
13. Economic Integration

Entrepreneur reduces the concentration of power in a few hands by creating employment

opportunities and through equitable distribution of income. Entrepreneurs promote economic
integration in the country by adopting certain economic policies and laws framed by the
government. They help in removing the disparity between the rich and the poor by adopting the
rules and regulation framed by the government for the effective functioning of business in the
country.

14. Inflow of Foreign Capital

Entrepreneurs help to attract funds from individuals and institutions residing in foreign countries
for their businesses.

 The important role that entrepreneurship plays in the economic

development of an economy can now be put in a more systematic and
orderly manner as follows:
1. Entrepreneurship promotes capital formation by mobilising the idle saving of the public.

2. It provides immediate large-scale employment. Thus, it helps reduce the unemployment

problem in the country, i.e., the root of all socio-economic problems.

3. It promotes balanced regional development.

4. It helps reduce the concentration of economic power.

5. It stimulates the equitable redistribution of wealth, income and even political power in the
interest of the country.

6. It encourages effective resource mobilization of capital and skill which might otherwise
remain unutilized and idle.

7. It also induces backward and forward linkages which stimulate the process of economic
development in the country.

8. Last but no means the least, it also promotes country’s export trade i.e., an important
ingredient to economic development.
  Choice of Form of Organisation for Expanding Business

If an entrepreneur carries out of activities of his business successfully over a period of time, there
is likely to be a need to expand his business so that much larger dema!1ds are easily met. Since
the resources - financial and managerial - of the entrepreneur are limited, he will have to review
the existing form of business organization and find out the possibility of changer-over to another
form to carry out the necessary expansion. Thus, while implementing the expansion programme,
he has to choose between carrying on with the existing form and changing the existing form of
organization. The main problems that an expanding concern will have to attend to are:

(i) Increased financial requirements.

(ii) Need for internal re-organization.
(iii) Need for specialized services.
(iv) Increase in the risk and the personal liability of the owners.
(v) Retention of effective control.
(vi) Increased tax liability.

The nature and extent of the problems mentioned above will depend upon the existing form of
organization, the nature and the size of business, and the expansion programme. The various
alternatives available to an entrepreneur, if he decides to change the existing form of
organization, are as follows:
(a) A sole trader may employ a manager or change-over to a partnership.
(b) A partnership may have more partners or switch to a private company.
(c) A private company may shift to a public company.

A brief evaluation of these alternatives, on the basis of the characteristics

of an ideal form of organization discussed earlier, is as follows:

First Alternative: Employment of Manager vs. Change-over to Partnership

When a. sole proprietor is successful in his business, it becomes essential for him to expand it to
meet much larger demand. To achieve this, he needs additional capital and additional help in
management. He has two alternatives. He may either employ a paid manager or may take one or
more partners. The relative advantages and disadvantages of both the alternatives are
Examined under the following heads:
(i) Re-organization:
If the sole proprietor decides to employ a manager, there will be no change in the form of
existing organization. Only a ‘contract of service is to be made with the manager. On the other
hand, if one or more patterns are taken, there will be change in the form of organization from
sole-proprietorship to partnership. This change requires entering into a partnership agreement,
drafting of a partnership deed and possibly, getting the firm registered; as registration is
desirable. Besides this, it is difficult to find out a partner. Thus, as compared to having one or
more partners, it is easier to employ a paid manager.

(ii) Capital:
When a manager is employed the additional funds are to be arranged by the sole proprietor
himself. There is, however, an advantage in this; the sole proprietor does not share profits with
the manager and therefore, the repayment of loan is possible out of profits. In case a partner or
partners are taken, additional capital will be brought in by him or them. The sole proprietor
need not borrow additional funds and bear the burden of their repayment; but the partners will
have to be given shares in the future profits of the firm.

(iii) Control:
If a manager is employed, full control of the business continues with the sole proprietor. On the
other hand, if a partner is taken, control is to be shared with him unless he is a sleeping partner
who contributes capital but does not participate in management: Finding such a sleeping partner,
however, is difficult.

(iv) Management:
In case a manager is employed, the quality of management in the firm is likely to improve;
because a manager possesses the necessary knowledge and skill for the purpose. However, the
manager may not take full interest in the business; as there is no direct relationship between his
efforts and reward; he gets fixed salary. On the other hand, if a partner with necessary
managerial skills is taken, he will contribute to additional capital and will also help in successful
running of the business. His interest in the business will be full; because he is going to share its
profits.
(v) Secrecy:
If manager is employed, the sole proprietor can keep all important business secrets to himself. In
partnership, all these secrets have to be shared with partners. Therefore, in a partnership;
business secrets can be retained by the partners so long as they act in good faith and
harmoniously; if they fall out, secrets may become public.

(vi) Business Risks:

In case a manager is employed, the sole proprietor has to bear all the business risks; He is
personally responsible for repayment of loans borrowed for the business and has to suffer all the
losses. In partnership, risk are shared by all the partners. They are jointly and severally liable for
the acts of one another and for the entire debts of the firm.

(vii) Tax Advantage:

When a manager is employed, the salary payable to him is a charge against profits of the
business. Moreover, interest paid by the sole trader on the loans of the business is allowed as
deduction for tax purposes. If a partner is taken, share of profit payable to him is liable to tax in
the hands of the firm if the firm is not registered under the Income Tax Act. Thus, in case of
partnership, the tax-incidence increases.

(viii) Continuity:
With the employment of a manager, the form of organization does not change. Therefore, even
after the appointment of the manager, the sole proprietorship remains unstable; it comes to an
end with the death, insolvency or insanity of the proprietor. On the other hand, when a partner is
taken, the partnership firm may be carried on by the remaining partners in case of death,
insolvency or insanity of one of the partners. Moreover, because of more funds and better
capacity to face risks, a partnership is in a better position to survive.

(ix) State Regulation:

If a manager is employed, no compliance with any regulation is required. From this point of
view, a partnership is also almost at par with sole proprietorship; because state regulation in its
case is minimum.
Conclusion:
From the above it appears, that in the initial stages of expansion, employment of a manager will
be better for the sole trader, provided he has managing capacity and sufficient credit standing for
raising additional funds from outside, However, as the business expands further and the sole
proprietor wants to diversify his business, it is advisable that he should opt for partnership. The
partner(s) will not only contribute to the capital of the firm but will also be helpful in sharing the
risks associated with the expanded and diversified business particularly when it is, uncertain and
risky. Besides this, a partner or partners, will also contribute towards making the management of
the firm effective.

Second Alternative: Partnership vs. Private Company

As the business of the sole proprietor expands further, he is faced afresh with the alternatives of
the forms of organization. He may opt for partnership, or convert his business into private
company. Similarly, an expanding partnership firm is also confronted with the alternative forms
of organization. The partners of such a firm may have to decide either in favour of more partners
or in favour of private company. While selecting between these two alternatives, the following
facts should be taken into consideration:

(i) Re-organization:
As compared to company, formation of a partnership firm is easier; because there are no legal
formalities to be completed is its formation. Registration of the firm is not compulsory. On the
other hand, incorporation of a company calls for the compliance of several legal formalities.
Thus, on this count, the partnership enjoys a distinct advantage over a private company.

(ii) Capital:
For a medium-sized business, both partnership firm and private company can raise sufficient
funds. However, a private company can raise more funds; because the limit on the maximum
number of members is 50 as against only 20 (l0 in banking business and 20 in non-banking
business) in case of partnership. Nevertheless, the creditworthiness of a partnership is better
because of unlimited, joint and several liability of the partners.
(ii) Liability:
The liability of each member of a partnership is unlimited, whereas the liability of the members
of a private limited company is limited to the face value of the shares held by them. Therefore,
partnership firm may be preferable for a medium-sized business with stable character. On the
other hand, a private company would be a better choice for a large business of speculative nature.
The limited liability is, definitely, a plus point” in favour of private company form of
organization.

(iv) Control:
In case a partnership is formed, the original owner has to share control of the firm with other
partners unless they are sleeping partners. On the other hand, in a private-company, the original
owner may be able to retain effective control of the business by holding the office of the
managing director of the company.

(v) Management:
In a partnership, since every partner has a right to be consulted with regard to the affairs of the
firm, inefficiency may creep in its management because of misunderstanding and conflict among
the partners. On the other hand in case of private company, its management rests with the few
elected directors who are in a position to take decisions promptly and boldly.

(vi) Secrecy:
Secrecy can be maintained in both the forms of organization almost equally well except that,
unlike a partnership firm, a private company has to file its audited accounts with the Registrar of
companies.

(vii) Continuity:
A partnership firm may come to an end on the death, retirement, insolvency or lunacy of a
partner. On the other hand, a private company enjoys continuity and stability and is not affected
by change in its members; it may last for generations.
(viii) State Regulation:
A partnership firm is subject to nominal Government regulation, even if it is registered. Of the
other hand, although a private company enjoys privileges and exemptions under the Companies
Act, yet it has to comply with a large number of legal formalities which involve considerable
amount of time and money. A partnership has a clear edge over a private company on this count.

(ix) Tax Advantage:

A partnership firm is at an advantageous position on the basis of tax liability. A partnership pays
tax on its profits at progressive rates whereas a private company pays tax at a flat rate. Therefore,
the tax burden is lighter in case of a partnership business than in case of a private limited
company, particularly, where the scale of operations is small or medium. However, tax liability
would be lower in case of a private company if the business profits are large.

Conclusion:
Before going ahead with the re-organization of the business, the businessmen should consider all
the factors mentioned above carefully. A partnership firm is as advantageous as a private
company; preference for the latter may be because of the advantage of limited liability.
Ultimately the decision will depend on nature and size of the business and the weight assigned to
the various factors discussed above.

Third Alternative: Private Company vs. Public Company

In general, for a medium-size business, both a partnership and private limited company are
considered suitable. Even for a sole proprietor, whose business is expanding fast, conversion to
private limited company may be advisable. He will get the benefits of limited liability and
reduced tax liability; presuming his income falls in the higher income bracket. However, when a
private company finds it difficult to meet the requirements of its fast growing business, it has to
choose between the existing form of organization and the possibility of converting the private
company into a public company. The decision will depend upon the careful consideration of the
following factors:
(i) Re-organization:
The formation of a private company is easier that of public company; because the former enjoys
many privileges and exemptions.
For example, a private company needs only two members for its incorporation as against
minimum of seven in a public company. A private company can commence business
immediately after its incorporation whereas a public company is required to raise minimum
subscription and obtain a certificate for the commencement of business. When business expands,
a private company may be converted into a public company by amending the articles of
association with respect to number of members, offer of hares to the public and their
transferability.

(ii) Capital:
The amount of capital that can be raised by private company is limited because of limit on the
number of members and restrictions on issue of prospectus to the public. The limited liability of
its members puts a limit on its borrowing power. On the other hand, a public company can raise
enormous amount of capital from the investors scattered throughout the country. It can also
procure additional funds by issue of debentures and by borrowing from special financial
institutions.

(iii) Control:
Since a private company is a closely controlled company, it is possible for the original
entrepreneurs to retain control of the company in their hands by holding key positions on its
board of directors. They can restrict the number of members of the private company to retain
their control. However, in a public company, control is shared with other investors. The special
financial institutions like ICICI, IFCI, IDBI, LIC, etc. which are empowered to covert their loan
into equity shares may have effective check on the policy decisions of a public company. Thus,
control is more personal and directs in case of a private company.
(iv) Management:
Both the types of company are manage by the elected Board of Directors. In case of a private
company, the Board consists of the entrepreneur and his close associates, often family members.
Thus, practically, there is no gap between the owners and the manager in a private company. On
the other hand, in a public company, the Board consists of non-owners, also many of whom are
elected because of their special managerial skills. Thus, professionalism gets boosted in company
management.

(v) Secrecy:
Unlike a public company, a private company is in much meter position to maintain secrecy in the
conduct of its business affairs. Although it is required to file its audited annual accounts with the
Registrar of Companies yet they are not open to public. On the other hand, all the papers and
documents field with the Registrar of Companies by a public company are open to public
inspection on payment of a nominal fee. Thus, a public company is not in a position to maintain
secrecy of its affairs.

(vi) Government Regulation:

A private company, being a closely held company, is left relatively free to conduct its affairs
without much Government regulation. Rather, it is granted certain privileges and exemptions. On
the other hand, a public company, being widely held, involves wider public interests, and
therefore, is subject to several legal formalities under various Act. The Government has been
given wide powers to regulate and control the management of a public company. The regulatory
provisions very often prove cumbersome and costly. Such regulations not only have adverse
effect on the freedom of management but also reduce flexibility of operations.

Conclusion:
The above analysis suggests that as far as possible an entrepreneur will try to retain his control of
the organization and avoid Government control. He will, therefore, function as a private
company. However, when the financial needs of business increase beyond the capacity of a
private company, it needs to be converted into a public company.
 ENVIRONMENTAL FACTORS AFFECTING SUCCESS OF A NEW
BUSINESS; REASONS FOR THE FAILURE AND VISIBLE PROBLEMS
FOR BUSINESS

 Reasons for Initial Failures and Visible Problems for Business

The failure of new enterprise and visible problems for business may be traced to the following
errors/oversights:
1. Lack of managerial experience or poor knowledge of the particular line of production.

2. Poor accounting system which results in non-availability of basic data necessary for decision-
making.

3. Wrong/inadequate estimate of cash requirements or faulty capital planning/ budgeting.

4. Lack of knowledge about tax-related matters.

A brief explanation of these factors is given below :

1. Lack of Managerial Experience:

The new entrepreneur should have all round knowledge about the various aspects of
management. He has to bear in mind the fact that he cannot afford to employ experts/specialists
for various specialized jobs. Hence, he has to be an all-rounder in management or his job is a
multifaced one. As an all-rounder he must look after:

(a) What, how and when to produce;

(b) Marketing of the products manufactured;
(c) Accounting systems; and
(d) Finance.

The owner of a small scale industry should be well-versed in all these areas. If he fails in one of
these areas, that is enough to give him heavy losses, which will result in the failure of the
enterprise. A technocrat may give much emphasis on technical aspects, but ignore marketing etc.
Similarly, one who is well experienced in sales may give undue importance to marketing, but
ignores technical aspects. So what is required is a good knowledge about all the aspects of
production, marketing, accounting and finance.

2. Poor Accounting System:

A good accounting system would provide information regarding costs, gross margin, break-even
point etc. which are highly useful for decision-making. In the absence of proper accounting data,
decision making would be difficult and the decisions made would not give the desired effect.

3. Inadequate Estimate of Cash Requirement :

A proper estimate of cash, requirements will help the proper functioning of the enterprise. A new
enterprise feels cash crunch when
(a) production does not reach optimum level
(b) production is below the break -even point,
(c) it fails to create and increase the demand for the product/services.

All these factors result in the depletion of cash very easily. This is because the time required for
these has been calculated wrongly. Delay in any one of these activities means more cash
requirements. Hence the entrepreneur has to estimate the time and also how a month-by- month
delay in starting the project would proportionately increase the capital requirements. Costs
escalate with the passage of time, therefore calculations have to be made in advance taking into
account the capital requirements by taking the time factor.

4. Lack of Knowledge about Tax Related Matters:

The entrepreneur must make himself aware of the provisions relating to income-tax and sales
tax. He must pay special attention to sales-tax laws and regulations – especially obtaining sales
tax registration at the appropriate time, filing tax returns regularly etc.

 Steps to Overcome Problems

Many studies have been conducted to identify the problems faced by the new enterprise. These
studies have mainly pinpointed the above problems and the following suggestions have been
made to overcome these problems:
1. Make an intensive study of the proposed project/product/service. Spend a lot of time in
preparing budgets, cost estimates, collecting market information etc. These are required to make
the proposed venture as realistic as possible. Once the project has been started it may not be
possible to consider or make changes.

2. Financial prudency requires that one has to adopt a conservative attitude towards estimating
income and liberal in expenses, at the same time there should be wide margin of safety.

3. It is advisable to make use of the services of bankers, management and tax consultants,
suppliers etc. to examine the proposed project and elicit their suggestions.

4. Accurate accounting information is vital for the running of the enterprise. Hence, the services
of a professional accountant should be made use of in devising an appropriate accounting
system.

5. Professional investors always look for lucrative ventures. If professional investors are
associated with the venture, they will scrutinize it from different angles before making any
investment. This will help the entrepreneur in determining whether the project is feasible or not
and give good returns.

6. Complying with taxation formalities and paying taxes have become a regular headache for
many entrepreneurs. The entrepreneurs should collect all information regarding various types of
taxes such as income- tax, sales-tax, excise duties etc. even before the unit is started: They must
familiarize with changes taking place in taxation laws and see the unit gets the benefits or
advantages of certain taxes. Income-tax, and excise duties come under central laws whereas
sales-tax some under state laws.

 Entrepreneurial Skills
Similar to the game of chess, success in business starts with decisive and correct opening moves.
And although initial mistakes are survivable, it usually requires skill, discipline and hard work to
regain the advantage.
There are five basic skills anyone must have to run any kind of business:

1. Basic money-management skills:

While you don’t need to have a lot of money to start a business successfully, you do need the
ability to make the most of the money that you have. Being able to focus on the bottom line and
pay attention to the numbers is as essential as the ability to price your products and services,
manage your cash flow, and make sure you collect payment for the work you do. If you are
lacking in these skills, you can get training in business.

2. A Marketing Mindset:
You aren’t truly in business until you have business. No matter how much your product or
service is in demand, or how great a job you do, if people don’t know about you, you won’t have
much business. You must be able to make your business visible the people who need it, and this
means understanding marketing.

3. Self-management skills:
To make it on your own, you must become a goal-directed and self-motivated individual. You
must be able to get yourself started every day, stick to business, and close the door on work at
the day’s end.

4. Time-management skills:
In your business, you will need to wear many hats, from-chief executive officer to janitor. You’ll
have to do the business, get the business, and run the business. This means you’ll need to manage
your time effectively to make sure the most important and urgent things get done in a timely
fashion.

5. Basic Office Organization:

Since one of the roles you’ll probably play is that at your own office administrator, you will need
to be able to organize, equip and manage your office space so that you can work effectively in it,
having a place for everything and keeping everything in its place go that you can find it easily
when you need it.
 UNIT-4

Government of India Support for Innovation and Entrepreneurship

in India

A few of India’s efforts at promoting entrepreneurship and innovation are:

· 1. Startup India:

Through the Startup India initiative, Government of India promotes entrepreneurship by

mentoring, nurturing and facilitating startups throughout their life cycle. Since its launch in
January 2016, the initiative has successfully given a head start to numerous aspiring
entrepreneurs. With a 360 degree approach to enable startups, the initiative provides a
comprehensive four-week free online learning program, has set up research parks, incubators and
startup centres across the country by creating a strong network of academia and industry bodies.
More importantly, a ‘Fund of Funds’ has been created to help startups gain access to funding. At
the core of the initiative is the effort to build an ecosystem in which startups can innovate and
excel without any barriers, through such mechanisms as online recognition of startups, Startup
India Learning Programme, Facilitated Patent filing, Easy Compliance Norms, Relaxed
Procurement Norms, incubator support, innovation focused programmes for students, funding
support, tax benefits and addressing of regulatory issues.

· 2. Make in India:

Designed to transform India into a global design and manufacturing hub, the Make in India
initiative was launched in September 2014. It came as a powerful call to India’s citizens and
business leaders, and an invitation to potential partners and investors around the world to
overhaul out-dated processes and policies, and centralize information about opportunities in
India’s manufacturing sector. This has led to renewed confidence in India’s capabilities among
potential partners abroad, business community within the country and citizens at large. The plan
behind Make in India was one of the largest undertaken in recent history. Among several other
measures, the initiative has ensured the replacement of obsolete and obstructive frameworks with
transparent and user-friendly systems. This has in turn helped procure investments, foster
innovation, develop skills, protect intellectual property and build best-in-class manufacturing
infrastructure.

· 3. Atal Innovation Mission (AIM):

AIM is the Government of India’s endeavour to promote a culture of innovation and

entrepreneurship, and it serves as a platform for promotion of world-class Innovation Hubs,
Grand Challenges, start-up businesses and other self-employment activities, particularly in
technology driven areas. In order to foster curiosity, creativity and imagination right at the
school, AIM recently launched Atal Tinkering Labs (ATL) across India. ATLs are workspaces
where students can work with tools and equipment to gain hands-on training in the concepts of
STEM (Science, Technology, Engineering and Math). Atal Incubation Centres (AICs) are
another programme of AIM created to build innovative start-up businesses as scalable and
sustainable enterprises. AICs provide world class incubation facilities with appropriate physical
infrastructure in terms of capital equipment and operating facilities. These incubation centres,
with a presence across India, provide access to sectoral experts, business planning support, seed
capital, industry partners and trainings to encourage innovative start-ups.

4. Support to Training and Employment Programme for Women (STEP):

STEP was launched by the Government of India’s Ministry of Women and Child Development
to train women with no access to formal skill training facilities, especially in rural India. The
Ministry of Skill Development & Entrepreneurship and NITI Aayog recently redrafted the
Guidelines of the 30-year-old initiative to adapt to present-day needs. The initiative reaches out
to all Indian women above 16 years of age. The programme imparts skills in several sectors such
as agriculture, horticulture, food processing, handlooms, traditional crafts like embroidery, travel
and tourism, hospitality, computer and IT services.
· 5. Jan Dhan- Aadhaar- Mobile (JAM):

JAM, for the first time, is a technological intervention that enables direct transfer of subsidies to
intended beneficiaries and, therefore, eliminates all intermediaries and leakages in the system,
which has a protential impact on the lives of millions of Indian citizens. Besides serving as a
vital check on corruption, JAM provides for accounts to all underserved regions, in order to
make banking services accessible down to the last mile.

· 6. Digital India:

The Digital India initiative was launched to modernize the Indian economy to makes all
government services available electronically. The initiative aims to transform India into a
digitally-empowered society and knowledge economy with universal access to goods and
services. Given historically poor internet penetration, this initiative aims to make available high-
speed internet down to the grassroots. This program aims to improve citizen participation in the
digital and financial space, make India’s cyberspace safer and more secure,abd improve ease of
doing business. Digital India hopes to achieve equity and efficiency in a country with immense
diversity by making digital resources and services available in all Indian languages.

· 7. Biotechnology Industry Research Assistance Council (BIRAC):

BIRAC is a not-for-profit Public-Sector Enterprise, set up by Department of Biotechnology to

strengthen and empower emerging biotechnology enterprises. It aims to embed strategic research
and innovation in all biotech enterprises, and bridge the existing gaps between industry and
academia. The ultimate goal is to develop high-quality, yet affordable, products with the use of
cutting edge technologies. BIRAC has initiated partnerships with several national and global
partners for building capacities of the Indian biotech industry, particularly start-ups and SME’s,
and has facilitated several rapid developments in medical technology.

· 8. Department of Science and Technology (DST):

The DST comprises several arms that work across the spectrum on all major projects that require
scientific and technological intervention. The Technology Interventions for Disabled and
Elderly, for instance, provides technological solutions to address challenges and improve quality
of life of the elderly in India through the application of science and technology. On the other
hand, the ASEAN-India Science, Technology and Innovation Cooperation works to narrow the
development gap and enhance connectivity between the ASEAN countries. It encourages
cooperation in science, technology and innovation through joint research across sectors and
provides fellowships to scientists and researchers from ASEAN member states with Indian R&D/
academic institutions to upgrade their research skills and expertise.

· 9. Stand-Up India:

Launched in 2015, Stand-Up India seeks to leverage institutional credit for the benefit of India’s
underprivileged. It aims to enable economic participation of, and share the benefits of India’s
growth, among women entrepreneurs, Scheduled Castes and Scheduled Tribes. Towards this
end, at least one women and one individual from the SC or ST communities are granted loans
between Rs.1 million to Rs.10 million to set up greenfield enterprises in manufacturing, services
or the trading sector. The Stand-Up India portal also acts as a digital platform for small
entrepreneurs and provides information on financing and credit guarantee.

· 10. Trade related Entrepreneurship Assistance and Development

(TREAD):

To address the critical issues of access to credit among India’s underprivileged women, the
TREAD programme enables credit availability to interested women through non-governmental
organizations (NGOs). As such, women can receive support of registered NGOs in both
accessing loan facilities, and receiving counselling and training opportunities to kick-start
proposed enterprises, in order to provide pathways for women to take up non-farm activities.

· 11. Pradhan Mantri Kaushal Vikas Yojana (PMKVY):

A flagship initiative of the Ministry of Skill Development & Entrepreneurship (MSDE), this is a
Skill Certification initiative that aims to train youth in industry-relevant skills to enhance
opportunities for livelihood creation and employability. Individuals with prior learning
experience or skills are also assessed and certified as a Recognition of Prior Learning. Training
and Assessment fees are entirely borne by the Government under this program.

· 12. National Skill Development Mission:

Launched in July 2015, the mission aims to build synergies across sectors and States in skilled
industries and initiatives. With a vision to build a ‘Skilled India’ it is designed to expedite
decision-making across sectors to provide skills at scale, without compromising on quality or
speed. The seven sub-missions proposed in the initial phase to guide the mission’s skilling
efforts across India are: (i) Institutional Training (ii) Infrastructure (iii) Convergence (iv)
Trainers (v) Overseas Employment (vi) Sustainable Livelihoods (vii) Leveraging Public
Infrastructure. Click here to download the framework for implementation.

· 13. Science for Equity Empowerment and Development (SEED):

SEED aims to provide opportunities to motivated scientists and field level workers to undertake
action-oriented, location specific projects for socio-economic gain, particularly in rural areas.
Efforts have been made to associate national labs and other specialist S&T institutions with
innovations at the grassroots to enable access to inputs from experts, quality infrastructure.
SEED emphasizes equity in development, so that the benefits of technological accrue to a vast
section of the population, particularly the disadvantaged.

 Role of Government in promoting Entrepreneurship

Government plays a very important role in developing entrepreneurship. Government develops
industries in rural and backward areas by giving various facilities with the objective of balances
regional development. The government set programmes to help entrepreneurs in the field of
technique, finance, market and entrepreneurial development so that they help to accelerate and
adopt the changes in industrial development. Various institutions were set up by the central and
state governments in order to fulfill this objective.
A. Institutions set up by Central Government

1. Small industries development organization (SIDO)

SIDO was established in October 1973 now under Ministry of Trade, Industry and Marketing.
SIDO is an apex body at Central level for formulating policy for the development of Small Scale
Industries in the country, headed by the Additional Secretary & Development
Commissioner(Small Scale Industries)under Ministry of Small Scale Industries Govt. of India.
SIDO is playing a very constructive role for strengthening this vital sector, which has proved to
be one of the strong pillars of the economy of the country. SIDO also provides extended support
through Comprehensive plan for promotion of rural entrepreneurship.

2. Management development Institute(MDI)

MDI is located at Gurgaon (Haryana).It was established in 1973 and is sponsored by Industrial
Finance Corporation Of India, with objectives of improving managerial effectiveness in the
industry. It conducts management development programs in various fields. In also includes the
programmes for the officers of IAS,IES,BHEL,ONGC and many other leading PSU’s.

3. Entrepreneurship development institute of India (EDI)

Entrepreneurship Development Institute of India (EDI), an autonomous and not-for-profit

institute, set up in 1983, is sponsored by apex financial institutions – the IDBI Bank Ltd., IFCI
Ltd., ICICI Bank Ltd. and the State Bank of India (SBI). EDI has helped set up twelve state-level
exclusive entrepreneurship development centre’s and institutes. One of the satisfying
achievements, however, was taking entrepreneurship to a large number of schools, colleges,
science and technology institutions and management schools in several states by including
entrepreneurship inputs in their curricula. In the international arena, efforts to develop
entrepreneurship by way of sharing resources and organizing training programmes, have helped
EDI earn accolades and support from the World Bank, Commonwealth Secretariat, UNIDO,
ILO, British Council, Ford Foundation, European Union, ASEAN Secretariat and several other
renowned agencies. EDI has also set up Entrepreneurship Development Centre at Cambodia, Lao
PDR, Myanmar and Vietnam and is in the process of setting up such centres at Uzbekistan and
five African countries.

4. All India Small Scale Industries Board (AISSIB)

The Small Scale Industries Board (SSI Board) is the apex advisory body constituted to render
advice to the Government on all issues pertaining to the small scale sector. It determines the
policies and programmes for the development of small industries with a Central Government
Minister as its president and the representatives of various organization i.e. Central Government,
State Government, National Small Industries Corporations, State Financial Corporation, Reserve
Bank of India, State Bank of India, Indian Small Industries Board, Non government members
such as Public Service Commission, Trade and Industries Members.

5. National Institution of Entrepreneurship and Small Business Development

(NIESBUD),New Delhi

It was established in 1983 by the Government of India. It is an apex body to supervise the
activities of various agencies in the entrepreneurial development programmes. It is a society
under Government of India Society Act of 1860.The major activities of institute are:

i) To make effective strategies and methods

ii) To standardize model syllabus for training

iii) To develop training aids, tools and manuals

iv) To conduct workshops, seminars and conferences.

v) To evaluate the benefits of EDPs and promote the process of Entrepreneurial Development.

vi) To help support government and other agencies in executing entrepreneur development
programmes.

vii) To undertake research and development in the field of EDPs.

6. National Institute of Small Industries Extension Training

It was established in 1960 with its headquarters at Hyderabad. The main objectives of national
Institute of Small Industries Extension Training are:

i) Directing and coordinating syllabi for training of small entrepreneurs.

ii) Advising managerial and technical aspects.

iii) Organizing seminars for small entrepreneurs and managers.

iv) Providing services regarding research and documentation.

7. National Small Industries Corporation Ltd. (NSIC)

The NSIC was established in 1995 by the Central Government with the objective of assisting the
small industries in the Government purchase programmes. The corporation provides a vast-
market for the products of small industries through its marketing network. It also assists the
small units in exporting their products in foreign countries.

 Entrepreneurship Development Programmes (EDPs) in India:

A Historical Perspective
Entrepreneurship Development Programmes (EDPs) in India: A Historical Perspective

It will not be less than correct to say that India got the political freedom on 15th August 1947, but
not the economic freedom. And attainment of economic freedom i.e., emancipation from poverty
and unemployment was the biggest challenge before the country. The war for economic freedom
started in 1950 in the form of planned development. Then, it was realized that the way to get rid
of poverty and unemployment lies in the effective exploitation of hidden potential in the country.
For this the policy makers started advocating the promotion and development of small- scale
industries in the country. As a result, small – sector was recognized as employment- oriented
sector during the early sixties.

The employment-oriented thinking for small sector underwent changes by the end of sixties and
now small sector was recognized as an effective instrument to utilize the entrepreneurial
potential remained hitherto dormant in the country.
Realizing the various problems faced by the entrepreneurs in establishing enterprises, the
Government decided to offer promotional package to the entrepreneurs. Promotional package
included financial help and incentives, infrastructural facilities, and technical and managerial
guidance provided through various supporting organizations of the Central, State and local
levels.

This experience made the planners and policy makers realize that facilities and incentives are, of
course, necessary for establishing enterprises, but are not sufficient to solicit adequate response
from the entrepreneurs. Hence, now it was realized that emphasis on human development is a
necessary condition for entrepreneurship development. As such, the serious thinking on
entrepreneurship development began from here.

Concerted efforts on entrepreneurship development in India started with the establishment of

Small Industry Extension and Training Institute (SIET), now NISIET, in 1962 in Hyderabad.
SIET got an opportunity with support from Harvard University to do pioneering work in
entrepreneurship development in India.

SIET in collaboration with Prof. David C. McClelland of Harvard University conducted 5-years’
training and research programmes in Rajamundi, Kakinada and Vellur towns of Andhra Pradesh
and Tamil Nadu. McClelland proved that, through proper education and training, the vital quality
of an entrepreneur, which McClelland called ‘need for achievement’ (n’ ach) can be developed

The fact remains that McClelland’s this successful experiment proved to be a seed for
entrepreneurship development in India which has by now become a movement as EDP
(Entrepreneurship Development Programmes) in the country.

It is against this background now the Government and financial institutions started thinking to
develop entrepreneurship in the country through training programmes. It was the Gujarat
Industrial Investment Corporation (GIIC) which for the first time started a three-month training
programme on entrepreneurship development in 1970.

This programme was designed to unleash the talent of potential entrepreneurs and some selected
entrepreneurs. Special emphasis was given on three aspects:

(i) Establishment of small-scale enterprises,

(ii) Its management, and

(iii) To earn profits out of it. By the latter half of 1970s’, the news of GIIC’s EDP spread to the
other parts of the country also.
A major initiative to foster economic development in the North East India took place with the
establishment of the North Eastern Council (NEC) in 1972. The main objective of the NEC was
to promote economic development of the NER through inter-state plans and bring the NER to the
mainstream of the country. This is a matter of great satisfaction that the NEC has since been
seriously involved in its task of regional development. Two more significant efforts were
initiated in 1973 with an objective to remove the economic backwardness of the region.

One, the establishment of the North Eastern Industrial and Technical Consultancy Organization,
(NEITCO) to impart training on entrepreneurship development, and second, the establishment of
the Entrepreneurial Motivation Training Centers (EMTCs) in its six district headquarters of
Assam.

Since EMTC was one of the oldest and noblest initiatives taken in the field of entrepreneurship
development in the country, some mention about the same seems pertinent. The State Planning
Board of the Government of Assam, under the dynamic leadership of the then Chief Minister,
took the initiative in requesting SIET Institute, Hyderabad to be associated with training and
research in the field of entrepreneurship development in Assam with specific focus on self –
employment for the educated unemployed youth of the State (Mali 2000).

In response to it, the SIET Institute organized two training programmes for three weeks duration
each in 1973, for the officers of Government of Assam One training programme was focused on
entrepreneurship development for a selected band of officers from the departments of industry,
agriculture, animal husbandry, public works and other departments and financial institutions of
the Government of Assam.

The training programme included inputs like various methods and techniques of identification
and development of prospective entrepreneurs, development of entrepreneurial personality, and
identification of economic opportunities for setting up small-scale enterprises in the State.

Functional areas of management for establishing and operating small enterprises on sound lines
were also included in the training programmes. Second the another simultaneous training was
imparted to the another group of officers of the industries department to encourage people to
establish small-scale industries, undertake industrial potential surveys, select growth centers,
plan infrastructure facilities, and develop business profiles.

Integrated entrepreneurship development model and plan were evolved as a result of SIET’s
experience and realisation that entrepreneurship development is a multi-disciplinary task, and the
long-range plan should be executed through well coordinated and orchestrated institutional
support.
The integrated model of entrepreneurship development proposed by SIET included five main
components, namely:

(i) Local organization to initiate and support potential entrepreneurs till the break-even stage,

(ii) Inter-disciplinary approach,

(iii) Strong information support,

(iv) Training as an important intervention for entrepreneurial development, monitoring and

evaluation, and

(v) Institutional financing.

Initially EMTCs were established in six centers in Assam under the State Planning Board, which
were monitored by 26 officers trained by SIET in May 1973. The team in each centre consisted
of multi – disciplinary talents. It is learnt that in 1979, after a comprehensive evaluation of the
performance of EMTCs by SIET Institute, the programme was transferred from the State
Planning Board to the Industries Department. Three more centers were added to the earlier six
locations.

The nine EMTCs where the programme was being implemented were as follows: Mangaldoi
(Darrang District), Silchar (Cachar District), Diphu (Karbi Analong District), Jorhat (Jorhat
District), Dhemaji (Dhemaji District), Kokrajhar (Kokrajhar District), in 1973, Dibrugarh
(Dibrugarh District), Nalbari (Nalbari District) and Nagaon (Nagaon District), in 1979.

SIET and Small Industry Development Organisation (SIDO) through Small Industry Services
Institute (SISl) and Industrial Development Bank of India (IDBI) and Technical Consultancy
Organisations (TCOs) started organising EDPs.

The encouraging results of these efforts culminated to the establishment of Centre for
Entrepreneurship Development (CED), Ahmedabad in 1979. Here, it is noteworthy that CED,
Ahmedabad was the first centre of its kind wholly committed to the cause of entrepreneurship
development.

Inspired and influenced by the success of CED, Ahmedabad; the national-level financial
institutions such as IDBI, IFCI, ICICI and SBI with active support from the Gujarat Government
sponsored a ‘Nation Resource Organisation’, called ‘Entrepreneurship Development Institute of
India (EDI)’, Ahmedabad, in 1983.
This institute was entrusted with the responsibility of extension and institutionalization of
entrepreneurship development activities in the country which the Institute has been discharging
successfully.

Almost at the same time of establishment of EDI in 1983, the Government of India established
‘National Institute for Entrepreneurship and Small Business Development’ (NIESBUD) to
coordinate entrepreneurship development activities in the country.

In course of time, some State Governments with the support from national level financial
institutions established state-level Center for Entrepreneurship Development (CED) or Institute
of Entrepreneurship Development (lED).

By now, the twelve States, viz., Bihar, Goa Gujrat, Himachal Pradesh, Jammu & Kashmir,
Karnataka, Kerala, Madhya Pradesh, Maharashtra, Odisha, Tamil Nadu, and Uttar Pradesh have
established either CED or lED. EDPs in these states were conducted by the TCOs before the
establishment of CEDs or lEDs. According to the study of NIESBUD, some 686 organisations
are involved in conducting EDPs in the country which have imparted training to thousands of
people by conducting hundreds of EDPs.