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Economic Development, achieved largely through productivity growth, which is very important
to both developed and developing nations. However, even though we know that balanced and
demand pull productivity leads to improved economic outcomes i.e, higher income, more
alternative choices, better quality products and moreover level of satisfaction among consumers.
India’s economic development strategy immediately after independence was primarily based on
Mahalanbosis model, which gave preference to the investment goods or capital goods with
secondary importance to the services and household sector. Over the time, India created a large
number of government institutions to meet the objectives of growth with equity via supporting
ongoing entrepreneurial projects and to encourage new and innovative entrepreneurial proposals.
This active and dominant participation by the Government in economic activities results in the
creation of a protected, highly regulated and healthy economic environment over the time, but
we can’t ignore a dramatic increase in corruption in the economy and sectoral imbalances, with
shortage in some sectors and surplus in others. (Alluwalia, 1985)
Entrepreneurial activities and projects are highly commended for developing countries and
country like India can generate additional economic growth and maintain the present level by
fostering entrepreneurial activity with in its border. In this paper we examine, how
entrepreneurial projects boost the economic growth by paying our attention towards
microeconomic and macroeconomic aspects. The plan of the paper is as follows. Section-I jot
down the factors influencing entrepreneurial development and factors responsible for hampering
it down in India. Section-II compares entrepreneurial activity in developed and developing
countries. Section-III helps in knowing the encouraging factors behind the self-employment.
Section-IV emphasize on addressing, how entrepreneurship good for economic growth in India.
Finally Section V summarizing the main findings and concludes the paper.
The progress of Indian Economic development from 1947 to the present, provides evidence
that individual do respond to incentives in their pursuit of self-survival and accumulation of
wealth. Further the nature of this response depends on the economic climate. So many factors in
our country posing rosy picture for the success of entrepreneurial projects. As far as Indian
growth story is concerned, India is one of the worlds fastest growing economy over the last
decade with consistent growth in production and domestic demand and presently ranked 4th in a
PPP comparison. Over the last decade the Indian economy has transitioned from an agrarian
economy to a predominately service based economy where, business services provider, trade,
hotel, banking, insurance, financial services and communication sector registered robust growth.
India’s growing participation in international trade opens the door for new and innovative ideas.
In the FY 2007-08 total earnings from foreign trade exceeded U$ 120 billion and Indian foreign
S.No Reasons for Sickness Total SSI Registered SSI Unreg SSI
Sector Sector Setor
1 Lack of Demand 66% 58% 69%
2 Shortage of Working 46% 57% 43%
Capital
3 Non-availability of 12% 12% 12%
Raw Material
4 Power Shortage 13% 17% 12%
5 Labour Problems 5% 6% 4%
6 Marketing problems 36% 37% 36%
7 Equipment Problems 11% 9% 12%
8 Management Problems 4% 5% 3%
*The total in each column will exceed 100%, as some units have reported more than one reason:
Source: Indian Economic Statistics(Table-2)
But, here we cant ignore the dark side and challenges we are facing like capital shortage
v/s abundant labor, growing unemployment, jobless growth and decline in labor sensitivity of
production. Secondly, educated mass v/s unemployment. Thirdly, it is evident from table no-2
sickness in Indian small scale industry, vulnerabilities of New start-ups, where two-thirds of all
In terms of opportunity entrepreneurship the leading countries are Peru, Ecuador, Uganda,
Jordanian, New Zealand, Iceland, Australia, USA, Argentina and Canada. As for necessity
entrepreneurship the leading countries are mainly the less developed ones, such as Uganda, Peru,
Ecuador, Argentina Poland, Jordan, and South Africa and India. Northwestern European
countries have a very low percentage of necessity entrepreneurship. According to the general
TEA index classification, India ranked rabove average necessity based country (Figure 1).
Considering the relationship between necessity-based and opportunity-based TEA index, the
largest number of people are forced into entrepreneurial career in South Africa, Brazil and
Uganda, in Europe we can list the following countries: Croatia, Hungary and Poland. The highest
percent of opportunity-based entrepreneurial activity can on the other hand be found in Denmark,
Iceland and Spain..
The large corporates are increasingly resorting to `outsourcing’ their regular manufacturing
activities to small and medium enterprises. Earlier companies in soap powder and biscuit and
shampoo categories did it, but now firms in the consumer durables sector as also in technology
and heavy engineering `outsource’ .Hence employment is growing. Not in corporates but in the
self-employed segment. Self-employment is the answer to the Western choice of capitalism and
socialism. Perfect. But do our policy makers know this caught as they are between providing
quota at various private companies or regulating courier companies ( there is a lot of casual
labour/contractors/self employed at both these places). It is interesting that the largest
contributors to the national income and employment and capital providers are not talked about or
considered in policy formulations. They are often dismissed as `unorganized’ or `residual’
sectors. India is one of the fascinating countries where more than 60 per cent of the activities are
called `residual’ sector.
The opposing groupings, of the globalizes and the Left intellectuals, interestingly support the
slow death of the self-employed group. Not only that, we seem to be bent on creating a huge
mass of unemployable persons with the education having no links to trade and craft. The
globalizer would like the entire country to be a giant corporation, FDI funded and owned, where
every one is a wage earner. For the Left thinkers it is a historical, and an inevitable, process
wherein the small entrepreneurs are destroyed to become workers. And jobs in public sector
units are more important than the livelihood of millions of street-corner vendors. Due to faulty
policies, supported by the metropolitan elite and the Marxist intellectual, we may end up having
a huge mass of unemployable persons who are currently self-employed. The policies to be
adopted in the service sector in retail trade, restaurants, construction, road transport, etc., are
going to require massive employment guarantee schemes (EGS) even in the urban areas, which
will make the state wither away.
The self employed really are the backbone of the nation, starting from the small tea shop at
construction sites to scrap dealers to vegetable vendors and going all the way up to hotshot
entrepreneurs. This is something we need to encourage, since it has been shown time and again
that private entrepreneurship and initiative is, really, one of the big things about India.
How is entrepreneurship good for economic growth? This question would seem to have a
simple answer: Entrepreneurs create new businesses, and new businesses in turn create jobs,
intensify competition, and may even increase productivity through technological change. High
measured levels of entrepreneurship will thus translate directly into high levels of economic
growth. However, the reality is more complicated. If, by “entrepreneurship,” one allows
inclusion of any type of informal self-employment, then high levels of entrepreneurship may
actually mean either that there are substantial bureaucratic barriers to formally creating a new
business, or simply that the economy is creating too conventional few wage-earning job
opportunities. Under these circumstances, we might reasonably hypothesize that high levels of
“entrepreneurship” would correlate with slow economic growth and lagging development.
Moreover, the relationship between necessity entrepreneurship and economic development is
most likely negative in low income countries while the relationship between entrepreneurship
and economic development in high income countries is mostly likely positive(Joltan K.
ACS,2007). This must be further balanced by the fact that some low income countries like India
and China have high levels of opportunity entrepreneurship, at least in certain part of the
country, and countries like Japan have very low levels of opportunity entrepreneurship and low
The small scale sector in India has particularly emerged as a vibrant and dynamic segment of the
economy. It is a matter of pride that India has a distinct position of its own among the
developing countries, particularly in the area of small scale industries, India has a vast reservoir
of scientific and technical manpower, occupying third position
Contribution of SSI in the industrial production and GDP
in the world as far as technical man power is Year Total Industrial Gross
concerned. Over the last five decades, the Production Domestic
small scale has acquired a place of Product
prominence in the economy of the country. It 2002-2003 38.89% 5.91%
has contributed significantly to the growth of 2003-2004 38.80% 5.82%
the Gross Domestic product , employment 2004-2005 40.01% 6.02%
generation and exports. The sector now
2005-2006 42.08% 6.40%
includes not only the SSI units but also the
2006-2007 44.96% 7.44%
small service and business enterprise
Source: Economic Survey 2006-
(SSSBEs) and is thus referred as small
07(Table-3)
enterprise sector. During 2002-03 to 2006-07
sector has registered continuous growth in the number of units, production, employment and
even exports. During this period the average annual growth in the number of units was around
4.1%, while employment grew by 4.2% annually. Further, the average annual growth in
production is at 12.6%. SME registered 20.8% growth in terms of Exports.
Findings
• India is having good push factors for entrepreneurial development like healthy and
encouraging GDP numbers between (7-8%), growth in number of Units(4.1%),
employment(4.2%) and Exports(20.8%).
• Level of entrepreneurial activity in India (TEA) stands at above average 7%.
• We are facing the vulnerabilities of New start-ups, where liability of newness/smallness
and moreover traditional Indian business wisdom causes problems for SSIs.
• While considering the necessity based and opportunity based TEA index, the largest
number of people are forced to being self-employed, because they don’t have any kind of
job.
• The relationship between necessity entrepreneurship and economic development is most
likely negative in low income countries, while the relationship between entrepreneurship
and economic development in high income countries is mostly likely positive.
• India is having high level of opportunity entrepreneurship, at least in certain part of
country, even though the level of income in India is very low.
• India’s economic development strategy immediately after independence was based on the
Mahalanobis Model, which gave preference to the Investment goods/capital goods, but
now SME activities has transitioned from an agrarian to a predominately service based
activities.
• More over, the SSI sector accounts for
1. 98% new start-ups in India are small
2. 40% of value added in the manufacturing sector.
3. 34% of national export.
4. 7% of Gross Domestic Product.
5. Employment to 294.41 lakh persons.
6. Production of over 8000 items in the Industrial Sector.
Less developed countries need to strengthen their Small and Medium Sized sector, before
focusing on the entrepreneurial framework conditions, since this is the first step toward
development. These policies are focused at firms not at individuals. These include financial
assistance, management assistance, training and reducing regulatory burdens. Part of the goal
should be to reduce the number of self-employed and strengthen the existing Small and Medium
Sized Sector. Underdeveloped countries should be focuses on bringing in direct foreign
investment that would employ more of the people leaving agriculture and self-employment. A
strong commitment to education and training, both at the elementary and secondary level are
important. Those with less education in developing countries will end up in necessity
entrepreneurship. The Indian economy provides a revealing contrast between how individuals
react under a government-controlled environment and how they respond to a market-based
environment. The evidence presented here suggests that recent market reforms encouraging
individual enterprise have led to higher economic growth in that country. The reasoning here is
not new, although it is refreshing to discover that this “tried-and-true” reasoning applies to
developing as well as to developed nations. Specifically, reliance upon a free market, with its
emphasis upon individual self-interest in survival and wealth accumulation, can yield a wide
range of economic benefits. In India those benefits have included, among other things, increased
economic growth, reduced inflation, a smaller fiscal deficit, and higher inflows of the foreign
capital needed for investment.
REFERENCES
Ahluwalia, I.J., 1985. Industrial Growth in India: Stagnation Since the Mid- Sixties (London,
Oxford University Press).
Lal, K Anil and Clement W. Roland. Economic Development in India; The role of Individual
Enterprises, Asia-pacific Development Journal, Vol 12. No 2, December 2005 , pp. 81-85
Acs J. Zoltan, How is Entrepreneurship good for Economic Growth?, Progress Foundation,
Zurich: Switzerland:Oct 2007.