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“Entrepreneurs” are people who create and grow enterprises.

“Entrepreneurship” is the process through which entrepreneurs create and grow enterprises.

“Entrepreneurship development” refers to the infrastructure of public and private policies and
practices that foster and support entrepreneurship.


The concept of entrepreneurship has a wide range of meanings. On the one extreme an
entrepreneur is a person of very high aptitude who pioneers change, possessing
characteristics found in only a very small fraction of the population. On the other extreme of
definitions, anyone who wants to work for himself or herself is considered to be an

The word entrepreneur originates from the French word, entreprendre, which means "to
undertake." In a business context, it means to start a business. The Merriam-Webster
Dictionary presents the definition of an entrepreneur as one who organizes, manages, and
assumes the risks of a business or enterprise.


The problem is essentially lop-sided development which is development of one area at the
cost of development of some other place, with concomitant associated problems of under
development. For instance, we have seen unemployment or underemployment in the villages
that has led to influx of rural population to the cities. What is needed is to create a situation so
that the migration from rural areas to urban areas comes down. Migration per se is not always
undesirable but it should be the minimum as far as employment is concerned. Rather the
situation should be such that people should find it worthwhile to shift themselves from towns
and cities to rural areas because of realization of better opportunities there. In other words,
migration from rural areas should not only get checked but overpopulated towns and cities
should also get decongested. The question is, is it really possible? If it is so, ways can always
be found out. One is by forcibly stopping villagers from settling in the slums of towns and
cities, making use of all powers to clear the slums so the villagers are forced to go back. But
such practices have not achieved the desired results in the past. Apart from causing suffering
to the poor people and adding to the expenditure for the Government, social tensions and
economic hardships created by the government officials and their staff in every demolition of
slums is not desirable from a sane government. Moreover, when a slum is demolished people
do not move out of urban locality. They only relocate to a nearby place because they are
entrenched in the economy of the town or city. Though governments have tried out various
schemes for generating incomes in the rural areas such government initiatives have not
stopped people from moving out of villages to cities. This is because such government
initiatives are not on their own capable of enabling people to earn adequately and ameliorate
their conditions. There has to be some committed enterprising individual or a group of people

who should be capable of making use of the government policies and schemes for the
betterment of rural people. Some individuals who happen to be local leaders and NGOs and
who are committed to the cause of the rural people have been catalytic agents for
development. Though their efforts need to be recognized yet much more needs to be done to
reverse the direction of movement of people, i.e. to attract people to the rural areas. It means
not only stopping the outflow of rural people but also attracting them back from the towns
and cities where they had migrated. This is possible when young people consider rural areas
as places of opportunities. Despite all the inadequacies in rural areas one should assess their
strengths and build on them to make rural areas places of opportunities. This is much to do
with the way one sees the reality of the rural areas. The way a survivor or a job seeker would
see things would be certainly different from those who would like to do something
worthwhile and are ready to go through a difficult path to achieve their goals. It isn't that
there is a dearth of people with such mindset. But with time they change their minds and join
the bandwagon of job seekers due to various compulsions. Enabling them to think positively,
creatively and Entrepreneurship purposefully is utmost for the development of rural areas.
Young people with such perspective and with the help of rightly channelized efforts would
usher in an era of rural entrepreneurship. In this country successful rural entrepreneurs would
solve many of the chronic problems within a short time.

To promote entrepreneurs who would take to rural entrepreneurship in utmost earnestness

and sincerity is to ensure rural development. Such enterprising people who prefer rural
entrepreneurship may or may not themselves belong to rural areas. Entrepreneurs taking to
rural entrepreneurship should not only set up enterprises in rural areas but should be also
using rural produce as raw material and employing rural people in their production
processes. Rural entrepreneurship is, in essence, that entrepreneurship which ensures value
addition to rural resources in rural areas engaging largely rural human resources. In other
words, this means that finished products are produced in rural areas out of resources
obtained in rural areas by largely rural people.

The entrepreneur may or may not be of rural origin. The entrepreneurs may be from
anywhere, but their enterprises have to be located in a rural area, using mainly local resources
both material as well as human. Also, the enterprises have to be located in a rural area though
it need not be actually using 100% local material and human resources. Some amount of
material and some people may be from urban cities. But certainly large portion of material
used has to be locally produced and an appreciable number of people engaged in the
production of finished goods should be people based or living in rural areas.

Even a unit set up by the government or a large company in a rural area could promote rural
entrepreneurship depending on how much opportunities it throws up for entrepreneurs to use
local resources, to fulfill the demands of such large units and the multiplier effect such large
units create. Any large unit coming up in rural areas more or less does have an impact in
activating the surrounding economy for entrepreneurs to take advantage of. This is precisely
the reason why it is recommended to shift industries from urban centers to neighboring rural
areas. Such shifting initially may be a difficult proposition but in the long run beneficial in
many ways. Moreover, it would throw up lots of opportunities in the rural areas and result in
decongestion of the urban centers. Urban slums would start disappearing with large number
of industries getting shifted to rural areas resulting in increasing opportunities in the rural
areas. Thus, both the rural as well as urban areas get benefited by setting up more industrial
units in the rural areas, making rural areas attractive locations for investments.

Constraints of Potential Rural Entrepreneurs and Development Inputs

Sr. No. Constraints Inputs
1. Low self-image and confidence. Motivational inputs, unfreezing and
experience sharing by successful local
2. No faith on others includes friends. Group building experiences.

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

4. Who to contact for starting a venture, Information inputs on procedures and

what formalities and procedures are to formalities.
be followed?
5. How to know whether the identified Opportunity identification and
business is a viable and sound guidance.
6. How to know whether the identified Market survey, project report
business is a viable and sound preparation.
7. How does one carry out bank Training in simple banking procedures
operations? like filing up deposit and withdrawal
slip etc.
8. How to manage the business? Basic management orientation through
simulation exercises.

9. How to read and write accounts? Functional and numerical literacy.

Simple accounting in terms of writing
income and expenditure.
10. Almost no technical skills Technical training (on-the-job training).



Rural entrepreneurial activity can be broadly classified in four types such as:

i) Individual Entrepreneurship - It is basically called proprietary i.e. single ownership of

the enterprise.

ii) Group Entrepreneurship - It mainly covers partnership, private limited company and
public limited company.

iii) Cluster Formation - It covers NGOs*, VOs*, CBOs*, SHGs* and even networking of
these groups. These also cover formal and non-formal association of a group of individuals
on the basis of caste, occupation, income, etc.

iv) Cooperatives - It is an autonomous association of persons united voluntarily for a

common objective.

An entrepreneur has to decide on a particular type of entrepreneurship based on the

various options available.


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


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

a. Partnership
In this case there is no individual ownership of the unit. There is another partner with
you who works with you and also bears the responsibility and shares profit. Like
proprietorship, the liability is "Joint and Several". For partnership type of
entrepreneurship, mutual trust is a must. Besides both the partners in partnership must
understand their respective responsibilities and complement each other for common
objectives and goal.

The characteristics of partnership are a) association of two or more persons

(maximum twenty), b) contractual relation: c) lawful business, d) sharing of profit, e)
agency relationship, f) unlimited liability; and g) non-transferability of interest.
The requirements of ideal partnership are good faith, common approach, written
agreement, registration, adequate capital, skills and stability. Partnership is governed
by Indian Partnership Act, 1932.


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

b. Private Limited Company

In this case the shareholders are the owners. There must be a minimum of 2 (two)
shareholders. The Indian law allows maximum of 50 (fifty) shareholders. The liability
is limited in this case. As such if the company goes bankrupt then no one has to part
with one's other personal assets to meet the obligation of the creditors.

Being a private limited company, one can raise far less money than a public limited
company. But there is better control as the number of shareholders is few besides they
may be your kith and kin. Many provisions of Company Law are not applicable to
private limited companies. There is much less paperwork too. Companies are
governed by Companies Act, 1956.

c. Public Limited Company

In this case the shareholders are also the owners. There must be minimum 7 (seven)
shareholders. There might be millions of shareholders as there is no such upper limit.
Being a, public limited company it can raise more money from the public by issuing
equity shares, debentures, etc. to meet various expenses of the company.

All provisions of the Company Law are applicable here. It is more of a professional
organization and is fully governed by the Companies Act, 1956. It is to be noted that
merit of forming a company are many such as large financial resources, limited
liability, continuity, transferability of shares, benefits of large scale operations,
professional management, public confidence, scope of expansion and growth, social
benefits, tax benefits, etc.


It is primarily a formal and non-formal group of people to achieve a common objective.

It basically covers Non-Governmental Organizations (NGOs), Voluntary Organization (VOs), Self-
Help Groups (SHGs), Community-Based Organizations (CBOs) and networking of all these.

a. NGO’s
These are non-profit making organizations registered under the Society's Registration Act,
1860. A group of seven people come on a common platform to carry out defined activities for
the socio-economic development of people.

The main characteristics of NGOs are:

i) These are initiated, sponsored and constituted mainly by the Government as autonomous
bodies to fulfill specific developmental objectives.
ii) These receive funds mainly from the Govt. and channelize them through VOs.
iii) These are usually non-political in nature.

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

b. VO’s
These are voluntary agencies initiated by individual for welfare and development. They may
or may not be registered under any appropriate Act. Generally these are registered under any
appropriate Act like Societies Registration Act, 1860, Indian Trusts Act, 1882 or Religious
Act, 1920. These frame their own Memorandum of Associations, rules and regulations and
systems for their governance. The VOs receive funds from various donor agencies including

VOs are generally managed by persons with motivated leadership and commitment. Their
main promoters are honorary with a strong desire to serve the people.

c. SHGs
Self-help groups are a platform of 10-20 people mainly, below the poverty line (BPL) to form
a social group not only to mutually help each other but also to achieve common objective.
Only one member from a family is eligible for membership group. The Swanjayati Gram
Swarozgar Yojana (SGSY) of the Ministry of Rural Development, Govt. of India covers all
aspects of self-employment of the rural poor viz. organisation of the poor in SHGs and their
capacity building, training, selection of key activities, planning of activity clusters,

infrastructure building up, technology and marketing support.

This is a non-formal group. The SHGs get funding from the NGOs, VOs and even from the
Government to carry out various activities in areas of common interest and an objective for
economic empowerment.

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


According to ILO, a cooperative organization is an association of persons usually of limited means,

who have voluntarily joined together to achieve a common economic end, through formation of a
democratically controlled business organisation making equitable contributions to the capital required
and accepting a fair share of risks and benefits of the undertaking.

According to International Cooperative Alliance (ICA) "A cooperative is an autonomous association

of persons united voluntarily to meet their common economic, social and cultural needs and
aspirations through a jointly-owned and democratically controlled enterprise".



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

a) Original enterprises created out of opportunities in supplying rural products to urban consumers
and new products to rural consumers.
b) Replication of urban experiences in Rural Setting.

Rural Entrepreneurship in India

One of the main aims of development policy in India is to provide employment to millions of
unemployed rural youth. India's rural economy is primarily agricultural based, but the rapid rise in its
population with consequent pressure on land has led the planners to lay greater emphasis on industrial
development. The core of the problem in countries like India is surplus agricultural labour and closure
of traditional village industries, resulting in unemployment in rural areas and movement or, migration
of rural youth to urban area in search of jobs thus putting more pressure on the urban infrastructure
and amenities.

Rural industries generated employment for 47.97 lacs persons in the year 1996-97 as against 37.21
lacs persons in the year 1992-93. Of late, Agro based industries have generated several employment
opportunities to rural people.

Income and Employment Potential

Industries in rural area, which are mostly micro or tiny in structure, are quick yielding. In other words
their gestation period is much less as compared to large-scale industries. Rural industries are labour
intensive and provide large employment opportunities to rural folks of all age groups. Khadi and
Village Industries Commission at national level and Khadi Villiage Industries Board at State level
have played a pivotal role in this context
The village and small-scale industries was set-up with the following aims:

1) to orient the rural population specially the rural youth towards entrepreneurship;
2) to increase the levels of earnings of artisans in rural areas;
3) to sustain and create avenues of self-employment among the unemployed youth;
4) to ensure regular supply of goods and services through use of local skills;
5) to develop entrepreneurship in combination with improved methods of production through
appropriate training and package of incentives;
6) to preserve craftsmanship and art heritage of the country.

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


percent of fruits and vegetables and 15 per cent of the milk produced are processed in the
industries as a whole.

The processed food industry, which ranks fifth in size in the country, represents 6.3 per cent
of GDP. It accounts for 13 per cent of the country's exports and 6 per cent of total industrial
investment which is estimated at US$70 billion, including US$22 billion of value added

After India started pursuing the path of economic liberalization this sector has been attracting
Foreign Direct Investment across different parts of the world in almost all the sectors.

2. Dehydrated Fruits and Vegetables

Foods are dehydrated either to preserve a perishable raw commodity to ensure its availability
round the year or to reduce the cost and /or difficulty in packaging, handling, transporting and
storing, by converting it to a dry solid by reducing its weight and volume. Of course, there are
other benefits to the user such as price stability, and also availability for immediate use
without preparation.

Grapes, bananas, mango, jackfruit, pineapple, papaya among others are highly nutritious and
delicious and can be used as preserved food which has got high potential. Similarly most of
the vegetables are seasonal and dehydration under hygienic conditions makes them available
throughout the year at a reasonable cost. These are convenient enough to be used by large
scale catering establishments and for defense services and in various expeditions, etc.

3. Fruit Based Beverages

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

4. Mushrooms
Mushrooms including the commonly known “Dhingri” grow on decaying tissues of plant
material under normal conditions.. It is light grey in colour and has pleasant flavour. The
study at CFTRI, Mysore has shown that it can be cultivated easily under normal conditions of
temperature (21° to 2S°C) and relative humidity ( 5% to 75%) for a period of 6 to 8 months in
a year in many parts of the country. It can also be cultivated in summer months, by providing
extra humidity and low temperature with the use of modem techniques.

The spawn (seed material) of mushroom is the ramified mycelium, which is used as which is
used as seed. The spawn is prepared by inoculating the pure culture of mushroom on paddy
jowar straw under certain conditions. This is known as master spawn. This can be stored at
room temperature for a period of 3 months from the date of inoculation.

Mushrooms have got tremendous market, both domestic as well as international. Local
market also has two segments, one is the domestic consumer and the other is the business
consumer at hotels and restaurants. Use of Mushroom has increased substantially at local
level in the recent past.

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

individually or in combination. The sweetening agents are added to the preparation. is a

popular item and has potential both in internal as well as export markets.

The main production areas of Chikki are Lonawala & Khandala in Maharashtra which are
located on the Mumbai-Pune highway. In this area several smallscale units produce Chikki
with over 100 varieties which are of very high quality products.

6. Poultry Industry
Poultry farming is one of the fastest growing industries in India. It is quite profitable
and can be managed by persons of all ages from all walks of life in all sections of the
country. It may be conducted as an exclusive business or as a side business for
additional income.

The National Commission of Agriculture states that poultry farming has certain special
Strategies and Experiences features, which favour its large-scale adoption by small and
marginal farmers and agricultural labourers. Land required for poultry farming is small;
the capital investment for starting small poultry units is less. Poultry farming can be
started on a small scale and can be expanded gradually. It does not require heavy
investment and the raw materials are easily available. Also short-term training facilities
are available and even uneducated people could set up poultry farms. Profits are earned
much sooner than most other farm products.

Some of the advantages of poultry keeping are:

1) Supplies nutritious food for the people.
2) Serves as hobby and sport for some people.
3) Requires less capital to start a poultry unit and gives good and quick
4) Needs little space and can be done in phases.
5) Water requirement is less as compared to crop cultivation or farming.
6) Waste products like bran and substandard grains can be utilized.
7) Eradicates garden pests such as caterpillars, insects and snails.
8) Gives rich fertilizer for crop cultivation especially for vegetable gardens.
9) Poultry feathers are useful in many ways.
10) It is a favourable side business to agriculture.
11) Gives income throughout the year.
12) Not much labour is involved and generates self-employment.
13) Supports many ancillary units.
14) Easy to manage, even women and children can look after them.
15) Some medicines and tonics are obtained from poultry as by-products.

Presently it is a well-organised agro-industry where people with limited or adequate

finances can start commercial poultry farming.

7. Cottage and Handicrafts Industry

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


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

The village oil industry employs lakhs of artisans in rural areas. This industry renders service
to the society in two-ways; it supplies fresh, flavoured and nutritious oil to the consumers on
the one hand and provides employment to the traditional artisans and others unemployed, on
the other.

In order to increase the production of oil, all sources of equipment must be utilized Since
Ghani is a simple machine, which needs low capital and small quantity of raw materials, it
must be encouraged.

9. Pottery
The pottery is traditional industry of rural India. In fact it is age-old industry where the
pottery products are used within rural India by rural folks for cooking (Handi), storing water
(Matka & Surai) and crockery and cutlery in the form of Kullar, etc.

The urban Indians are using the pottery products for plants, very special kitchen items made
up of china clay for serving tea, coffee, clay bowels for preparing curds and serving food.


The service sector enterprises are generally more successful, no matter whether co-operating
in rural or urban areas. What is more important is identification of the nature of need based services
related business activity.

10. Repair of Phone/Mobile Phone, Electronic and Electrical goods

With Industrial growth and revolution in communication industry especially in the field of
electronic media all over, the rural India is also using TV, radio particularly for various FM
stations available in local and regional language, cable network, land line and mobile phones.
The various service providers have opened a range of self-employment opportunities to rural
educated youth who have the competence and/or are willing to work or start their own
enterprise in the area of service needs of rural India.

Self-employment oriented training programmes to start an enterprise with small investment

are easily available to rural youth through various training institutes which do not require high
level of educational qualifications. It rather requires the necessary skill and basic aptitude to
learn and understand the skill.

Service in this sector varies from opening of a shop as sales outlet, a service outlet, outlet for
accessories or an outlet of the main service provided vendors specially mobile phone

This area covers large number of activities in rural India where youth can undertake the
activity of higher taste. This being a purely service oriented sector, a person with good
interpersonal relations and qualities will win over the business competition, which in any case
is basic requirement to become a successful entrepreneur.


11. Rural Tourism

India is one of the oldest, culturally richest and diverse country full of colour and boasts of a
civilization with rich flora and fauna. Our cuisine is mouth watering, scenic beauty is
breathtaking, folk dances are simply enchanting and wide array of places of tourist attraction -
from the valleys of Himachal Pradesh, hills of Uttranchal, plains of the river Gang% forests of
North East, or plateau of South India, In other words, India is simply full of diversity and that
is why the latest blitz of the Government terms her as Incredible India.

Nearly two-third Indians live in villages; in fact our roots are located in rural India. Moreover
most of tourist sites are located away from the urban centres towards rural India and the trend
is also shifting towards the rural areas. There is wealth of craft performing art, vivid lifestyle
and cultural diversity obtaining in rural India.

12. Entertainment
In the absence of leisure time Bs well as purchasing power, the rural folks are generally
devoid of the entertainment which everyone needs for rest and relaxation. With the reach of
electronic media the rural youth has developed a taste towards music, dance, acting, etc. in
addition to traditional songs, folk dances, cultural activities, traditional games and sports
which can be used as source of revenue generation. This type of service can be provided
either by an individual having good financial background or by a small group rendering and
promoting such activities and services in rural India on various occasions such as social
functions, VIP visits, etc.

Such events are attracting not only the domestic tourist but international tourist also is now
keen to observe Indian customs, culture and costumes thus becoming a very good source of
income for the rural unemployed youth.

13. Modern Industries

With the Government efforts to extend the development initiatives to rural India especially in
developing States, the Modem industries are being given special packages and relief with tax
benefits for setting up the industries at a subsidized cost with the aim to provide job
opportunities, infrastructure development in terms of road, power, water supply, e t ~T.h is, in
consequence, leads to overall increase in the living standards of local people where the
modem industries are being set up by various national and international companies. As a
matter of policy, the industries are being asked to shift from the large townships like metros
especially to decongest and lessen the burden on the urban centres.

These industries offer great opportunities of varied nature of jobs for local youth who are
educated and are willing take challenging assignments, whether wage-employment or self-
employment type. The employment opportunities are basically based on qualifications, skills
and expertise while self-employment opportunities or indirect employment opportunities are
based on the various types of industry related trade or service activities which the rural youth
can undertake and be gainfully employed.

Modern industry is now playing very important role ever since globalization and
liberalization policy of Government came into existence and it has definitely helped the rural
youth in finding suitable vocation.



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


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

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

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

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

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

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


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

i) Similar enterprise owners/producers

ii) Raw materials suppliers


iii) Machineries suppliers

iv) Packing materials suppliers

v) Customers

vi) Dealers

vii) Consultants

viii) Employees of similar enterprises

ix) Bank officials

x) Promotional agency and regulatory agency officials

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

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

These are information in the following forms:

• Feasibility studies
• Project profiles
• Industry studies
• Area development studies
The organizations in possession of information on business opportunities are are:

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

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

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

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

5) Lead Bank (one in each district)

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

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

8) Khadi and Village Industries Commission (KVIC)

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

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

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


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

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

14) Industrial Consultancy Firms


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

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

• Uses/applications of the product or service

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

Capital Organization

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

• Land cost and land development charges,

• Construction of buildings,
• Purchase of plant and machinery,
• Acquiring technical know-how,
• Procuring miscellaneous fixed assets,
• Margin of working capital,
• Contingencies, etc.
While sanctioning loans, the financial institutions consider the credit worthiness of the project beside
the payback capacity of the project. Hence assessment of financial viability is a must before releasing
the funds.

Support System

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

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


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

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


For sound market assessment three things are important such as –

Analysis of Market Demand

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

The Competition

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

Trading Practices

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

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

Primary Data & Secondary Data

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

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

a) Annual reports of the companies

b) Trade publication and records

c) Libraries and trade information centers

d) Directories of manufacturers


e) Newspaper, business magazines, etc.

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

g) Data agencies, consultancy firms, etc.

h) Information from dealers, various agencies

Market Research (MR)

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

There are five steps in marketing research process which are:

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


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

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

b) Market potential and marketing strategy

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

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

e) Requirement of plant and machinery including their installation

f) Manufacturing process

g) Requirements of utilities such as water and electricity

h) Requirements of raw materials and sources of supply

i) Estimated cost of the project

j) Means of finance

k) Cost of production, taxes and profitability

h) Break-even point

m) Cash flow statement

n) Internal rate of return and

o) Economic viability

A feasibility report must provide a base-technical, economic and commercial-for an investment

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


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


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

1. The Factories Act, 1948

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

2. The Industrial Disputes Act, 1947

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

3. Social Legislation

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

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

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

4. Wage Legislation

It covers the following Acts:

i) Payment of Wages Act, 1936,

ii) Payment of Gratuity Act, 1972,

iii) Payment of Bonus Act, 1965, and

iv) Minimum Wages Act, 1948.

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

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

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

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



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

Achievement motivation is a key to entrepreneurship development. This is achieved in many ways:

childhood reading, upbringing, exposure to challenging situations, self study, apprenticeship,
coaching and training, all contribute to achievement motivation.

Training for Entrepreneurship Development

Development of entrepreneurs through systematic training namely Entrepreneurship Development

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

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

Entrepreneurial motivation is the most important factor in contributing to the development of

entrepreneurship in a society. So, various aspects that help in developing achievement motivation
need to be included in the EDP training courses. These skills have to be properly emphasized.

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

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

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

Training and Development of Rural Entrepreneurs

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

Training of rural Youth for Self Employment (TRYSEM):

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

Prime Minister's Rozgar Yojana (PMRY):

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

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

Swaranjayanti Gram Swarozgar Yojana (SGSY):

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

The Scheme also seeks to associate reputed non-governmental organisations in implementation of

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

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

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

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



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

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

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

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

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

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

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

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

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

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

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

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

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

Telecommunication: The telecommunications services form the core area of infrastructure

development today with the thrust on e-governance up to district, tehsil and Gram Panchayat levels.
Telephones have become omnipresent with installation of more than 37000 electronic telephone
exchanges by the government.

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

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

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

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



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

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

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

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

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


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

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

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


Planning –

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

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

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

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

Operational Planning:

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


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

Product Choice:

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


Technology Choice:

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

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

Organizing Production/Services

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

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

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

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


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

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

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

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

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

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

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

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

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

In the process, the enterprise slows down and suffers.

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


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

Production Management

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


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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

Marketing Management

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

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

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

The customers decide:

a) What they want and need,

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

c) Where and from whom they will buy it.

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

Since marketing is assumed to be crucial to entrepreneurial success, marketing management needs to

be taken up ardently by the new entrepreneurs.


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

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



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


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

Break-even Analysis

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

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

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

Cash Flows Management

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

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


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

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

Accounting and Book-keeping

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

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

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

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

Income Statement: Income statement summarizes the enterprise's financial capability. An

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

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



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

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

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

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

Institutional financial is of three types:-

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

2) Development banks:- Small industries development bank of India(SIDBI) , National

Bank of Agricultural and Rural Development Bank (NABARD), National Housing
Bank (NHB)

3) Non banking financial companies


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

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

1) Cash Credit (for Working capital Requirement)

2) Term Loan (for appearing Fixed Assets)
3) Bridge Loan (short term finance)


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


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


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

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


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

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

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

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


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

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

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



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

Common Pitfalls

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

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

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

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

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


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

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

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