INDIAN INDUSTRIAL ENVIRONMENT Competence, Opportunities and Challenges, Entrepreneurship and Economic Growth, Small Scale Industry in India, Objectives, Linkages among Small, Medium and Heavy Industries, Types and Forms Enterprises. Qt) Ans. : List out the linkages is required to between small and large scale industries. [May - 2016] (or) List out the areas where linkage is required between small and large scale industries. [EEG Linkages among Small and Heavy Industries ‘Small Industries Large Industries Equity held by founder / family. quity °y Mostly public investor-held equity. Owner-managed. Professional management. Decision-making largely by owner. Short-term (seat-of-the-pants) planning- primarily by owner. Informal processes, mostly people get things done. Most capital needs met by leveraging personal net worth. Distributed decision-making by organ- izational hierarchy. : Extensive long-tern planning horizon by dedicated teams. Formal structure and processes, mostly people independent. Wide range of funding sources. OUTASTUPDATES? "Your sosces ou pltrmQ2) Ans. : Q3) Ans. : Q4) Define privatization? The term “Disinvestment” is used more often than “Privatization” in India, Disinvestment means control of the share of the government to the level Where there is no change in control that results in the transfer of management. Privatization is define as providing ownership to private people/enterprise jn public or government owned organization. ee Briefly explain about partnership enterprises. [May/June - 2015) Partnership is an association of two or more persons to carry on a business ang to share its profits and losses. : According to Partnership Act, “Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of ‘hem acting for all”. of partnership, (1) Easy Formation : A partnership firm is very easy to form. No formal documents are required. A simple agreement is enough to start a partnership firm, (2) Registration not Compulsory : A partnership firm is exempt from registration because registration is not compulsory. It is left to the discreation of the partners. (3) Sharing Risk : The risk in the business is shared by more persons. The burden of every partners will be much less as with the one person. The following are the disadvantages of partnership, (1) Limited Capital : Since there is a limit of maximum Partners (20 in non-banking firms and 10 in banking firms), the Capital raising capacity of the Partnership firms is limited. (2) Unlimited Liability : The most important drawback of a partnership firm is that the liability of the partners is unlimited. What are the objectives of government towards entrepreneurship? 1 The objective of government towards entrepreneurship in make in India are, (@) To start-up the core manufacturing sector by an entrepreneur and play a key role in success of both enterprise and nation. (2) To start entrepreneurship and e-commerce in the present time and highlighted the encouraging core of manufacturing sector by an entrepreneurs. (3) To make entrepreneurs in financing the whole introduction of manufacturing units. —_ OU[ASTUPDATES? Your accesso platform5) Ans. : Q6) Ans. : Q7) Ans. : Q8) Ans.: The small scale industry is considered as important due to following, What are the different agencies help in export promotion of SSI products. {May - 2016] [May/June - 2015] The different agencies help in export promotion of SSI products are, (1) Agriculture and processed food products expert development authority. (2) Carpet export promotion council. (3) Cotton textiles export promotion council. (4) Export promotion council for handicrafts. (5) Handloom export promotion council. (6). Jute manufactures development council. (7) Central silk board. (8) Indian Institute of Foreign Trade. (9) Tea portal, tread board, India. (10) National oil seeds and vegetable oil development board. What do you mean by entrepreneurship? “Entrepreneurship is the function of seeking investment and production opportunity, organizing an enterprise to undertake a new production process, raising capital, arranging labour and raw materials, finding a site, introducing a new technique and commodities, discovering new sources for the enterprise.” According to A.H.Cole, “Entrepreneurship is the purposeful activity of an individual or a group of associated individuals, undertaken to initiate, maintain or increase profit by production or distribution of economic goods and services”. Define the term small scale Industry? Small Scale Industry (SSI) is an industrial undertaking with the investment not exceeded % 100 lakhs in plant and machinery. In case of auxiliary industries the investment ceiling on plant and machinery is also 100 lakhs. According to Fiscal Commission, 1950 SSI is A unit operating mainly with hired labour usually 10 to 50 hands.” According to Small Scale Industries Board, 1955 “A unit employing Jess than 50 persons if using power and less than 100 persons without the use’ of power and with a capital investment not exceeding Rs. 5 lakhs.” Why the small scale industry is considered as important? (1) To create more employment opportunities with less investment. (2) To remove economic backwardness of rural and less developed regions of the economy. (3) To reduce regional imbalances. OUTASTUPDATES? "Your sce our lation,Q9) What are the advantages of entrepreneurship? Ans. : Advantages of entrepreneurship are, q) (2) @) 4) Set their Own Schedules : There is no fixed working hours rule for entreprengy as they do not report to anyone. They work acc er own requirements and set up their own targets. Entrepreneurs are their Own Bosses : Nobody dictates erusentaes £0 wha to do? They in fact need not report to anyone and are t A pal 5. Hence, they can be called the supreme masters of their own dest 7 Sense of Accomplishment : The feeling of achievement, once the at Concept is successful is highly enthralling for the entrepreneur because, he is solely responsible for its introduction and the resultant success. Freedom to Make their Own Decisions : The desire to be free from all kinds of rule is a driving force behind contemporary entrepreneurs. Most of the attempts at entrepreneurship were a result of frustration caused due to rigid bureaucratic systems, even when they possessed sincere commitment to work and the desire to make a difference. Q10) Distinguish between partnership and sole trade? Ans. : FREER Ditrerence between Sole Proprietorship and Partnership S.No. Basis Partnership Sole Proprietorship (or) Trade (1) _| Membership | Partnership is owned by two or more persons known as partners. Sole-trade business is owned and controlled by only one person. @) | Agreement | To constitute a partnership, an agreement is required either in writing ‘or oral. There is no need of agree- ment in this business. @) | Registration | Registration is not compul- sory but non-registration bars it from taking legal remedies ie, registration has advantages. No registration required. (4) | Management | All partners rights and all of them can Participate in the manage- ment. They can bind the have. equal | This business is controlled ingle and managed by sin8? owner, OU[ASTUPDATES? Your accesso platform[RIEL INDIAN INDUSTRIAL ENVIRONMENT, COMPETENCIES, ‘ OPPORTUNITIES AND CHALLENGES Qt) Write short notes on Indian Industrial Environment. [May/June - 2015] ‘Answer : India is a developing economy and it is a well known fact that in India, agriculture sector is having a lot of importance. Eventhough neglected during British rule, in the post- independence era, due to the successful implementation of five plans, there has been significant progress in industrial sector in India. Following are the economic reforms based on the Indian Industrial Environment, (1) Liberalization : Liberalization is the process of removing the economy from the various * regulatory and control mechanisms of the state and of giving greater freedom to enterprise. Liberalization is the context of economic reforms in India, refers to the relaxation of earlier government restrictions, usually in the areas of social and economic polices. It can be understood as changing the economic environment from restrictionist regime into a free regime. It also consists of allowing private sector to run those activities reserved for public sector and relaxing all rules and restrictions relating to the growth of private sector. The important elements of liberalization are, (i) Industrial Licensing Policy : As a part of. liberalization, industrial licensing was abolished for all industries except for 18 strategic industries separate sentence starting with presently, industrial licensing is compulsory for only 5 industries. At present, only 3 industries namely, atomic energy, specified minerals relating . to atomic energy and rail transport are exclusively reserved for public sector. In projects where imported capital goods and equipment are necessary atomic clearance is assured, subject to availability of foreign exchange. (ii) Foreign Investment Policies : As a part of liberalization, it was decided to approve foreign direct investment upto 51% equity in high priority industries requiring large investment and advanced technology. At present Foreign Direct Investment (FDI) is approved upto 100% of equity in more sectors subject applicable rules and regulations. However, FDIs are prohibited in retail trading, atomic energy, lottery business and gambling and betting. . (iii) Foreign Technology : In order to inject technological'dynamism into Indian industry and make vibrant, government has provided for automatic approval of foreign technology, collaboration agreements in high priority industries. No permission from government agencies is necessary for employing technicians, foreign testing of indigenously developed technologies. OUTASTUPDATES? "Your sce our lation,(iv) Public Sector Policy ; In view of the failure of public sector in India, efforts are (2) wv) Gl being made in the direction of revival, rehabilitation and take over of sick units by private sector. Sick and loss incurring public sector units are referred to the Board for Industrial and Financial Reconstruction (BIFR) for advice on their rehabilitation and revival. Disinvestment programme was initiated and a part of the government shareholding in public sector enterprises was offered to mutual fund organizations, general public, financial institutions and workers. Through all the above measures, the government has indicated its intension of inviting a greater degree of private participation in public sector units. Narasimham Committee Report recommended a re-organization of the public sector banks, Solving the problems of bad d: sts and’ freedom of operations of foreign bank. ) MRTP Act : In the pre-liberalization era, there were a number of restrictions on private investment, expansion of private sector units through the provisions of MRTP Act, As a part of liberalization, various provisions of MRTP Act were scrapped providing more freedom to private enterprises in matters of expansion and diversification of their units. However, MRTP Act still aims at controlling unfair and restrictive business (trade) practices. losbalization + Globalization is the term used to describe the process of removal of restrictions on foreign trade investment, innovations in communications and transport system. There changes have encouraged nation to reduce the high level of protection between.countries and to adopt policies to liberalize their economic in order to increase their volume of trade. The following are various conditions of globalization in India, @ Business Freedom : It is felt that economic liberalization is an important prerequisite of globalization. If business people enjoy more freedom without unnecessary government restrictions like import restrictions, restrictions on foreign capital and foreign investment, etc., there can be speedy globalization. (ii) Infrastructural Facilities : Globalization in developing countries like India depends upon the availability of improved/developed infrastructural facilities like water, transport, electricity, finance, etc. (iii) Government Support : It is felt in some quarters that unnecessary/undue government interference is an obstacle to globalization. However the fact is that in countries like India, rapid globalization can take place with active encouragement and support of government like procedual reforms, development of common infrastrictural facilities, financial market reforms, research and development support, etc. OUTASTUPDATES? "Your success, ou platform(Ww) Resources : The availability of various types of resources which a business possess influences globalization. irms which are resourceful, with abundant finances, modern technology, R&D capabilities, managerial expertise, good brand and company of image, quality human resources can be very successful and ahead international business and globalization. (v) Competitiveness : The competitive edge or advantage which a business firm enjoys over its competitors is a factor that determines the success of globalization. Factors like low cost and lower price superior product quality, product differentiation, technological superiority, effective/good after sales service, good marketing strength are the crucial factors that influence globalization. (vi) Orientation : Success in any area depends upon right orientation and attitudes. Likewise globalization anywhere, including in India depends on global or orientation among business firms and appropriate globalization strategies. (3) Disinvestment / Privatization : The term “Disinvestment” is used more often than »privatization” in India. Disinvestment means control of the share of the government to the level where there is no change in control that results in the transfer of management. Privatization is define as providing ownership to private people/enterprise in public or government owned organization. Since the process of disinvestment was started in India (1991), it can be consists of two types such as, (i) Token Disinvestment : Disinvestment started in India with a high political caution- in a symbolic way known as the “token” disinvestment. The general policy was to sell the shares of PSU’s maximum upto 49%. This phase of disinvestment through brough some extra funds to the government. (ii) Strategic Disinvestment : The Government classifying the PSUs into ‘strategic’ and ‘non strategic’ announced in March, 1999 that it will generally reduce its stake (share holding) in the ‘non-strategic’ Public Sector Enterprises (PSEs) to 26% or below if necessary and in the ‘strategic’ PSEs (i.e., anus and ammunition, atomic energy and related activities and railways) it will retain its majority holding. The essence of the strategic disinvestment was, - The minimum shares to be divested will be 51%. = The wholesale sale of shares will be done to a ‘strategic partner’ having international class experience and expertise. in the sector. OUTASTUPDATES? "Your sosces ou pltrmQ12) Explain the role of Indian industrial sector. Answer : The importance/role of industrial sector in Indian Economy can be understood with the following, (1) Share of Industries in the GDP : The share of industries in GDP of India has been increasing steadily, with it increasing from 13.3% in 1950-51 to 24.4% in 2001-02 and further to 26% in: 2008 (i.e., 1993-94 prices). (2) Increase in Employment of Opportunities : Industrial sector in India is steadily contributing to an increase in employment opportunities. The working population in Industrial sector was 10.7% in 1950-51 and it further increased to 17.56% in 2008- 09. (3) Share of Industrial Sector in National Income : The share of Industrial sector in the National Income of India was only 14.8% in 1950-51, but it has increased to 25.9% in 2008-09. (4) Growth of Large Scale Industries : The tremendous growth of Industrial sector during the last 60 years in the form of establishment and development of basic and capital goods industries like Iron and Steel, Coal, Cement, Heavy chemicals, etc., has created a sound basis for rapid Economic Development in the country. (5) Growth in the Production of Consumer Durables : In recent times due to liberalization, rapid industrialization has contributed to the healthy’ growth of consumer durable goods sector. The annual growth rate of consumer durable goods, which was only 14.4% during 1981-85 has incteased to 16.9% during 1985-90. (6) Industrial Policy, 1991 : The New Industrial Policy, 1991 and the policy of liberalization, by reducing the role of public sector and enhancing the role of private sector, are contributing to rapid industrialization in the country. Q13) Define economy of nation and explain different factors which influence the economical status of a country? [May - 2016] Answer : The economy is defined as a social domain that emphasizes the practices, discourses, and material expressions associated with the production, use and management of resources. An economy of a‘nation is a system of organizations and institutions that either facilitate or play a role in the production and distribution of goods and services in a society. Economies determine how resources are distributed among members of a society, they determine the value of goods or services and they even determine what sort of things can be traded or bartered for those services and goods. A nations general economic health can be measured by looking at that country’s economic growth and development. OUTASTUPDATES? "Your sce our lation,Following are some of the important factors that affect the economic status of a nation, (1) Human Resource : It refers to one of the most important determinant of economic growth of a country. The quality and quantity of available human resource can directly affect the growth of an economy. The quality of human resource is dependent on its skills, creative abilities, training, and education. If the human resource of a country is well skilled and trained then the output would also be of high quality. (2) Natural Resources : Affect the economic growth of a country to a large extent. Natural resources involve resources that are produced by nature either on the land or beneath the land. The resources on land include plants, water resources and landscape. The resources beneath the land or underground resources include oil, natural gas, metals, non-metals, and minerals. The natural resources of a country depend on the climatic and environmental conditions. Countries having plenty of natural resources enjoy good growth than countries with small amount of natural’ resources. (3) Capital Formation : It involves land, building, machinery, power, transportation, and medium of communication. Producing and acquiring all these manmade products is termed as capital formation. Capital formation increases the availability of capital per” worker, which further increases capital/labour ratio. Consequently, the productivity of labour increases, which ultimately results in the increase in output and growth of the economy. (4) . Technological Development : It refers to one of the important factors that affect the growth of an economy. Technology involves application of scientific methods and Production techniques. In other words, technology can be defined as nature and type of technical instruments used by a certain amount of labour. Technological development helps in increasing productivity with the limited amount of resources. Countries that have worked in the field of technological development grow rapidly as compared to countries that have less focus on technological development. The selection of right technology also plays an role for the growth of an economy. On the contrary, an’inappropriate technology- results in high cost of production. (5) Social and Political Factors : Play a crucial role in economic growth of a country. Social factors involve customs, traditions, values and beliefs, which contribute to the growth of an economy to a considerable extent. Example : A society with conventional beliefs and superstitions resists the adoption of modern ways of living. In such a case, achieving becomes difficult. Apart from this, political factors, such as participation of government in formulating and implementing various policies, have a major part in economic growth. OUTASTUPDATES? "Your sosces ou pltrm(8) Corruption : Corruption is rampant in developing countries at various levels and (6) Q14) Discuss the competencies of Indian industrial en’ operates as a negative factor in their growth process. Until and unless these countries root-out corruption in their administrative system, it is most natural that the capitalists, traders and other powerful economic classes’ will continue to exploit national resources in their personal interests. Capital Formation : The strategic role of capital in raising the level of production has traditionally been acknowledged in economics. It is now universally admitted that a country which wants to accelerate the pace of growth, has their own choice but to save a high ratio of its income, with the objective of raising the level of investment, Great reliance on foreign aid is highly risky, and thus has to be avoided. Economists rightly assert that lack of capital is the principal obstacle to growth and no developmental plan will succeed unless adequate supply of capital is forthcoming, Whatever be the economic system, a country cannot hope to achieve economic progress unless a certain minimum rate of capital accumulation is realized. However, if some “country wishes to make spectacular strides, it will have to raise its rate of capital formation still higher. Answer + qa) (2) @) (4) The competencies of Indian Industrial Environment are, Theory of the Firm : Industrial economics then proceeds to understand the firm vis~ a-vis the industry. What is a firm? How is it related to the industry? What are the objectives of a firm? By studying the objective, one can find out the equilibrium position of a firm. All these conditions therefore, become a part and in fact the starting point, of the study of industrial economics. Cost Analysis and Production Function : Production is the activity in which a firm is engaged. What is the nature of production? How can the various resources be combined to get optimum results? These are some of the relevant questions a firm has to resolve. Again, production involves cost. There are various concepts of cost: All these concepts are relevant in analyzing costs. Cost analysis and production function therefore become an integral part of industrial economics. Profit Analysis : Profits form by far the most important goal of a firm. Various theories of profits, measurement of profits and concepts regarding the reasonableness of profits deserve a scrutiny by industrial economics. Macro-economic Environment : A firm has to operate in the midst of a large number of firms from numerous industries. How does the economy as a whole function? How are levels of income and employment determined? Does the economic activity remain stable OF does it fluctuate? Do prices remain stable? If not, what effects would follow price fluctuations? All questions like these belong to macro-economic analysis and need a” attention of industrial economics, since they form the economic environment of a firm: _—_—— OUTASTUPDATES? "Your sosces ou pltrm6) and the n: © Qi5) What are the opportunities for Indian Industrial Environment? Answer : While India strugg the world, especially caused largely requirement for skilled worke: the availability of skilled people si Medicine, and education, the ¢ develo; y lower bi For the developed world, th slow down economic growth. And (1) Demand and Supply : increase wage rates, 2) Working Population : Based on the shortage and slow growth relating to other countries, the various PPortunities for Indian industrial Environment are, (1) Revenue : The generation of revenue form the various source enhance th Change in the industrial sector. (2) Importing Customers : The second opportunity, importing customers into India, has the potential of generating billion of revenues and crea! million jobs (direct and indirect). Purely from an economic perspective, the fundamentals for this business are strongly in India’s favour. OU[ASTUPDATES? Your accesso platform3) (4) Q16) Multi Lateral Manufacturing : India is available with different multi skilled basis where manufacturing possibly were enhance the opportunity to get less cost of production and high quality goods. Skilled Employees : Labour and employees are the important components of any industries. India is being one the player who develops skilled employees and labour to utilize effectively. * Discuss the different challenges faced by Indian Industrial Environment? Answer : a) (2) (3) (4) The various challenges faced by the Indian industrial environment are, Unbalanced Industrial Structure : Despite all efforts India has not been able to attain self sufficiency in respect of industrial material. India is still dependent on foreign imports for transport equipments, machineries (electrical and non-electrical), iron and steel, paper, chemicals and fertilisers, plastic material etc. In the total industrial production consumer goods contribute 38 percent. In newly industrialised countries like Singapore, South Korea and Malaysia this percentage is 52, 29 and 28 respectively. This shows that import substitution is still a distant-goal for the country, Low Demand : There is low demand for industrial products in the country due to low consumption level, weak purchasing power and poor standard of living. The domestic market is chronically underdeveloped through lack of enthusiasm generated by the middle and upper class segment who do not wish to raise their. standard and improve their living conditions. Regional Concentration :.In India most of the industries are located in few selected areas leaving out vast expanse of the country devoid, of industrial establishments. Most of the industries are located in and around metropolitan cities like Mumbai, Kolkata, Delhi etc. This has not only created regional imbalance and regional disparity but has encouraged fissiparous tendency including unrest, violence and terrorism. Loss in Public Sector Industries : Owing to focus on socialistic pattern of development investment under public sector industries increased phenomenally during early fivé year plans. But due to defective policy of the government characterised by redtops and inefficiency and strained labour-management relations most of these public sector enterprises are running in loss. Every year the government has to incur huge expenditure to cover up this loss and me ‘et obligations of paying wages to the employees. eae nN model of ‘il i f tie eae of development initiated during the fifties 0 OUTASTUPDATES? "Your sosces ou pltrm6) (6) 7) (8) Industrial Sickness : In the private industrial sector a growing number of industrial units are becoming sick. Widespread sickness has, indeed, become a major problem of this sector. The causal factors for this sickness are, (i) Deficient management. (ji) Under-utilisation of capacity due to shortage of raw materials, coal and power and transport. (iii) Obsolete machinery, equipment and production techniques. (iv) Uneconomical scale of production. (v) Faulty choice of products and processes. (vi) Difficulties in selling the products. (ui (vii) Conflict between different interest groups among the owners. Diversion of funds to new units under same ownership. In order to provide a focal point for the revival of sick units, the Industrial Reconst- ruction Corporation was reconstituted in 1985 as the Industrial Reconstruction Bank. It is now the principal agency for reconstruction and rehabilitation of sick units. The Central Government set up in 1986 two Funds, the Textile Modernisation Fund (TMF) and the Jute Modernisation Fund (JMF) to provide assistance on concessional terms to healthy as well as sick units for modernisation. These two Funds are being administered by the IDBI and the IFCI respectively. There is also a need for constant monitoring and deterrent penalties to the parties responsible for sickness. Lack of Infrastructure : An inadequate infrastructural facility is another major problem faced by the Indian industries. Energy crisis has a great bearing on the industrial development and production, Although the installed capacity of electricity increased from 66.08 million km in 1990-91 to 85.79 million km in 1996-97 but it is much short of the actual demand. It leads to power cut and rostering which hampers the industrial production. Most of the State Electricity Boards are running in loss and are in deplorable condition. Rail transport is overburdened while road transport is plagued with many problems. Even national highways in many places are in bad shape. Telecommunication facilities are mainly confined to big cities. Improper Location Base : Industrial locations, in several instances, were established without reference to cost-effective points. Each state clamors for the establishment of major industries in the public sector within its boundaries, and the location decisions are often politically motivated. Lack of Capital : Indian industrial development is facing acute shortage of capital. The short-term and long-term loans from international agencies like World Bank and Asian Development Bank etc., have done more harm to the economy than taking it out from the crisis. A lot of foreign exchange is being utilised in the payment of these loans. OU[ASTUPDATES? Your accesso platformee 4 The situation becomes acute when fresh loans are taken to pay the instaline of the old loans. Due to liberalisation, the foreign exchange ee Position hag improved in recent years and flow of foreign capital has started in: industria Secto, These foreign investors also do not like to invest in such Tetustaten which eGuirg large capital, need long gestation period and where recovery is slow or More Tis is involved. Instead of depending on foreign capital we have to place more relianes on indigenous capital with greater emphasis on the development of Priority industries, , Ee (9) Shortage of Industrial Raw Material : Indian Agricore, the major source of industria, raw material, is still dependent on the monsoon. Natural calamities like droughy, famine, flood ete badly affect agricultural production as well the supply. of industria raw material. Failure of monsoon even affects the purchasing power of the people and also the demand for industrial products. It sometimes creates glut in the market and industrial plumpness. Cement industry is recently facing such crisis. | } Drought like situation even affects hyde! generation, ieading to energy crisis, More pressure on railways to transport coal and on thermai gower sector for higher output. This leads to a chain of crises which have interlinking effect. (10) Higher Cost of Production and Low Quality of Goods : Indian industries mostly survive on home demands. These have been given a number of conc protection from foreign industries. Here most of the work is dor and obsolete machines. ssions and even by hand on old This increases the cost of production and brings down the quality of products produced. Since these industries have virtual monopoly they hardly bother to improve their quality. Public sector units, under direct contro! of the government, frequently increase the prices which provide golden opportunity to private industrialists also to increase the prices. Our industrial products are not able to make wide market abroad. The low purchasing power of the people even reduces home demand. The situtation is likely to change during globalisation when there is apprehension of wide spread closure of these industries due to stiff competition offered by muttinationél companies. This is also not good for the country and the Indian industries. (11) License Policy : The license policy approving the site, capacity, type and expansio” Of industries is a typical example of excessive state interference and red tapes whic? hinder the industrial development. Recently some examples of political vendetta hav? come to surface whereby central government over delayed the approval of industries from such states where hostile political party is in Power. Ministers and influential Political leaders are pressurising industrialists to install industries in their electo™! area So as to approve their licenses. With the introduction of liberalisation polic! many of the shortcomings of the license policy have been re-maved — OU[ASTUPDATES? Your accesso platform(QE ENTREPRENEURSHIP AND ECONOMIC GROWTH ai7) Define entrepreneurship. What are its characteristics? Answer + “Entrepreneurship is the function of seeking investment and production opportunity, organizing an enterprise to undertake a new production process, raising capital, arranging labour and raw materials, finding a site, introducing a new technique and commodities, discovering new sources for the enterprise.” According to A.H.Cole, “Entrepreneurship is the, purposeful activity of an individual or a group of associated individuals, undertaken to initiate, maintain or increase profit™ by production or distribution of economic goods and services”. According to Schumpeter, “Entrepreneurship is based on purposeful and systematic innovation. It included not only the independent businessman but also company directors and managers who actually carry out innovative functions”. a) @) The following are the main characteristic of an entrepreneur, The Quality of Managerial Skills and Leadership : Hoselitz feels that the managerial skills and leadership are the most important aspects of entrepreneurship. Financial skills are secondary. According to Hoselitz, when a person wants to become an industrial entrepreneur he must have more drive to earn profits and gain wealth. An individual should have the ability to lead and manage. Hoselitz has found that there are three types of business leadership, namely merchant money lenders, managers and entrepreneurs. The function of money lending group is market-oriented, that of the second is authority-oriented while the third group has in addition to the above a production-orientation. A Function of « Peer Group : According to Young, “the entrepreneurial characteristics are found in groups and clusters” which may qualify themselves as entrepreneurial class. Entrepreneurial activity may be generated by the particular family background, experience as a member of certain groups and as a reflection of general values. Through the Thematic Appreciation Test (TAT) on a group of entrepreneurs, Young has found that the tendency to describe the situation as a problem to be solved, an awareness of pragmatic effort required, confidence in their own ability to solve the problem and a tendency to take the viewpoint of each individual in turn and analyze the situation as he might see it before suggesting an outcome. OUTASTUPDATES? "Your success, ou platform8) (4) 6) ©) @ Q18) neurship is 2 creative activity. Basically Says that entrepre’ he economy, troduces something new into t duction not yet applied in the particular branch of which consumers are not yet familiar or 8 NeW source to unexploited or a new combination of Means on of an entrepreneur is to anticipate the potentially tion involves problem solving ang 0 exploit it. Inno’ eur is 2 problem solver. An Urge to Achieve : According to McClelland, an urge to achieve Is tendency to fe « in situations involving an evaluation of one’s performance in.relation to some standard of excellence. A person who has high need for achievement is likely to succeed as entrepreneurs. more Organizing Capacity industrial developr delegating responsibility to others. According to Harbison, “an entrepreneur should possess the managerial skills innovation and at the The organizing capacity is the most critical skill required for his skill refers to the ability to ‘multiply oneself by effectively and creativity.” He considers creation of new organization as same time stresses the organization building ability. Influence of Social, Political and Economic Structure : According to Kunkel, the rate entrepreneurial class and there must be some . Generally entrepreneurs are not spread over in the marginality does not gen additional factors at population. The people belonging to (religious, ethnic, migrated, displaced elities) have provided most of the entrepreneurial talent. But all the minorities are not important sources of entrepreneurship. Risk Taking : It is the important feature for en entrepreneurship which impulses assuming the responsibility for loss that may occur due to unforeseen contingencies of the future. Entrepreneur has to take the decisions under uncertainty and thus they are willing to take risk. What are the elements of entrepreneurship? Discuss. Answer : qa) Two basic elements of entrepreneurship are, Innovation : Innovation to an entrepreneur is like what water is to a fish. Innovation means either doing something new or unique from the existing’ products or services. Entrepreneurs need to be alert and updated about the changing tastes and preferences of the customers. Entrepreneurs may or may not be inventors of new products or services, but they are competent enough to make use of the existing products, simply re-innovate them and sell at lower prices. Example : The latest example of innovation is mango-fruity, which is now made available in small cartons instead of big bottles. These small cartons are disposable in nature. Once used they can be disposed off and can be handled easily. OUTASTUPDATES? "Your sosces ou pltrm2 a @) aig) Similarly, Lipton also came up with an innovative idea and a product called as ‘pudiyas’ wherein tea was made available in small quantity especially for the rural customers. Thus, it can be inferred that the entrepreneurs need to produce an innovative products as per the needs of customers. Risk Bearing : Flying on sky is not an easy task. One needs to put in extra efforts to reach that position. In other words, to get higher returns one Heeds to take higher risk. Being an entrepreneur itself is a risky task. The organization or the enterprise may be enjoying profits or suffering loss because of cut-throat competition, changing tastes and preferences of the customers, scarcity of essential commodities and so on. An entrepreneur must be capable enough to predict the levels of risk involved. He must be a risktaker and not a riskavoider. It is his riskbearing ability which motivates him to take ‘n’ numbers of ventures even if few of them fail. What are the advantages and disadvantages of entrepreneurship? Answer : q) @) (3) (4) ® Advantages of entrepreneurship are, Set their Own Schedules : There is no fixed working hours rule for entrepreneurs as they do not report to anyone. They work according to their own requirements and set up their own targets. Entrepreneurs are their Own Bosses : Nobody dictates entrepreneurs as to what to do? They in fact need not report to anyone and are their own boss. Hence, they can be calied the supreme masters of their own destinies. Entrepreneurship is Exciting and Rewarding : For those who enjoy taking up challenges and rising in spite of all odds, this is the right path to tread. Everyday entrepreneurs are faced with a new challenge or risk, carving their way through them is the spurring force and often a component of the reward for them. The resultant excitement and adrenaline rush is generated as, they are masters of their own fate and the turn of fate is determined by their own actions and decisions. Sense of Accomplishment : The feeling of achievement, ‘once the idea-or concept is successful is highly enthralling for the entrepreneur because, he is solely responsible for its introduction and the resultant success. Freedom to Make their Own Decisions : The desire to be free from all kinds of rule is a driving force behind contemporary entrepreneurs. Most of the attempts at entrepreneurship were a result of frustration caused due to rigid bureaucratic systems, even when they possessed sincere commitment to work and the desire to make a difference. OUTASTUPDATES? "Your success, ou platformDisadvantages of entreprene ship are, (1) Pressure of Knowing that the Business could Fall : Entrepreneurship involve tisk, The knowledge of this fact generates a lot of pressure on the entreprensury because, if these risks get realized, they may have to go out of business oF even incur huge losses. (2) Emotional Strain and High Levels of Stress + According to Boyd and Gumpert stress is caused due to factors such as loneliness, Immersion In business, people generated problems and the need to achieve. Emotional stress and strain Is also due to estent gaps between a person’s expectation and his ability to meet demands, a5 ae as gaps between his personality and expectations. Entrepreneurs in order to achieve sustainable success should deal with these factors, with utmost urgency. (8) Involves Long Hours and Hard Work : Unlike regular employment, where the number of hours is fixed and where the job Is bundled with benefits, such as paid holidays, provident fund, gratuity etc., an entrepreneur Is literally married to his business and ig devoid of such benefits. As achievement brings satisfaction, he continues to work long hours leaving almost no time for recreation, farnily, friends and other forms of social activity. (4) Uncertainty of Income : In the initial stages, the entrepreneur may have to thrive on earlier savings as, almost negligible or no income is generated in this period. But once income starts flowing in, this may also be not assured as the income from one month may be utilized to recover the losses of the next month. (5) Willing to do Everything Connected with the Business : This type of behavior results from several factors such as, wish to achieve, an overbearing need for control, sense of distrust, a perfectionist attitude and an overriding desire for success. At times, entrepreneurs in their passion for the success of their venture, operate under extreme conditions of stress. 20) Provide an overview on entrepreneurship and economic growth. Answer : Basically the growth of entrepreneurship depends upon the economic history of @ country. On the basis of India’s economic histor it y, the growth of i goareny On we basso grov entrepreneurship is being a) Pre-independence Period : Entrepreneurship in India can be witnessed back in the Vedic civilization around B.C 2000-1500, wherein Aryans used to practise metal handicrafts, It can be inferred that handicrafts entrepreneurship in oe as old bs thé human clvization and was nourished by the craftsmen as one of their duties fe society. Prior to the British’ entry in India, the village was being considered for the economic system, as the Indi : common life of the people. as the Indian towns were distant from thé OUTASTUPDATES? "Your success, ou platformIn the vedic civilization the society was being classified into various categories as farmers, artisans and religious priests. Most of the artisans were considered as slaves. This compressed system of village community protected the artisans from the external. competition and hence, there was no localization of handcrafts industry in the ancient period. Indian craftsmanship was characterized by perfect art, durability and were attractive in nature. Few well-known products of the pre-independence period were as follows, (i) Corah : Produced in Bengal. (ii) Chintzes ; Produced in Lucknow. (iii) Dupatias and Dhotis : Produced in Ahmedabad. (iv) Silk-bordered cloths : Produced in Nagpur. (v) Shawls : Produced in Kashmir. (vi) Metal Wares : Produced in Banaras. _ Thus, in the 17t* century and in the beginning of the 18" century India was considered as the golden eagle due to handicrafts industry. DECLINE OF THE HaNpicrarts INDUSTRY Primarily Indian handicraft industry was considered as cottage and small sector industry which witnessed a great fall.due to the following criteria, (i). Dispersion of the Indian Royal Courts, who supported the handicraft industry. « (ii) Indifferent attitude of the British colonial governments regarding Indian handicraft industry. (ii) High excise duty on Indian imports from England. (iv) Large-scale production of British goods at lower costs resulted in, reduced levels of competition among Indian handicrafts. (v) Enhanced transportation facility resulted in the availability of British goods everywhere, even to the far off places. (vi) Changing tastes and habits of the Indians. (vii) Consistency of the Indian craftsmen to adapt changes according to the changing tastes and preferences of the people. In the year 1677, the English East India Company gave a contract to Manjee Dhanjee to build the first large gun-powder-mill in Bombay. In 1852 a Parsis foreman from the gun factory started the steel industry. Thus, it is evident from these facts that the English East India Company played a very significant role in the progress of entrepreneurship in India. OUTASTUPDATES=- "Your sce our lation,The second half of the nineteenth century witnessed great evolution of entrepreneurs. Failures were experienced by the Europeans in establishing factories in India before 1850. Initially, Parsis were the founders of manufacturing entrepreneurs in India. Ranchodlal Chotalal, a Nagar Brahman, was the first Indian who wanted to start the textile industry on modern factory lines in the year 1847, but unfortunately could not succeed. He made second attempt in which has was successful in establishing a.textile mill in 1861 at Ahmedabad. By the time Ranchodlal Chotalal could establish his textile mill, Cowasjee Nanabhoy Davar of Bombay followed by Nawsosjee, Wadia, had already established the first cotton textile unit in 1854 and in 1880 respectively Upto 1915, Parsis contributed largely towards the growth of entrepreneurship. Waves IN ENTREPRENEURSHIP Entrepreneurship in the pre-independence period basically belonged to two waves. In the first wave, except Parsis rest of all were from non-commercial communities. Parsis outstanded the Jains and Vaishyas of Ahmedabad and Baroda in the entrepreneurial activity in the 19 century mainly due to two reasons. () Due to the enhanced business climate in the country, which resulted in guaranteed immediate returns on investments. (i) Due to the traditional belief of practising commercial entrepreneurship rather than industrial entrepreneurship. The Swadeshi movement laid greater emphasis on the native goods and industries, which helped in developing nationalism all over the country. The effect was so strong that Jamshedji Tata named his first mill as “Swadeshi Mill”. This swadeshi spirit was propagating throughout the country like catching of fire in the forest. It was so strongly supported that Krishna mills in its advertisement of tribune of April 13 made the following appeal. “Our concern if financed by native capital and is under native management throughout”. The second wave, of entrepreneurship in India started after the First World War There exist many criteria for this. The Indian government accepted the ‘discriminating’ protection to few industries, even making it compulsory that the industries which are enjoying the benefits of discriminating protection need to register themselves in India with a capital in terms of rupees and have few Indian directors. This was greatly beneficial and in favour of Indians. The Europeans were unsuccessful i" controlling the protectionist policies to their interests. — OUTASTUPDATES? "Your sosces ou pltrm(2) Post-independence Period : Post-independence period i.e., after 1947 India regained its independence on 15" August 1947~after long years of colonial rule. India took a long sigh of political relief in 1947 and it tried to achieve balanced regional development. Therefore, the first industrial policy was formulated in the year 1948 which is being reviewed since then’ from time to time on regular basis. The government of India, since its inception has always been emphasizing on promoting, assisting and developing industries nationally. The government of India also identified the potential role played by the private sector in the industrial development. The following are the three significant measures taken up in the industrial resolution by the Indian government, (i) To maintain a proper economic concentration of power among private sector and public sector. (ii) To fasten the pace of industrialization through propagating entrepreneurship from the existing centres to other cities, towns and villages. (ii) To disseminate the entrepreneurship acumen focused on certain dominant communities to the industrially competent masses of different social strata. In order to achieve these general objectives, the government has laid emphasis on the development of small-scale industries in the country. Since, the third five- year plan government has been: providing various incentives and concessions like capital, technical know-how, markets and land to the potential entrepreneurs to develop and start industries in backward regions to achieve, balanced regional development. This was in fact one of the major steps taken by the government to encourage people of different social strata to enter into small-scale manufacturing field. It can be summarized that before 1850, the manufacturing entrepreneurship was lying dormant in artisans. The artisan entrepreneurship was not able to prosper and progress due to insufficient infrastructural facilities and indifferent attitude of British but it was because of the efforts of English East India Company, the Managing Agency Houses and other different socio-political movements like Swadeshi and many more provided one way.or the other for the evolution and development of manufacturing entrepreneurship after 1850 onwards. ~The entrepreneurial growth was increase significantly after the Second World War and has lead to a great increase in the number of entrepreneurs. A drastic increase was viable during the third five-year plan period but the entrepreneurs did Not have the entrepreneurial ability. OUTASTUPDATES? "Your success, ou platforma 21) Explain the role of entrepreneurs in economic gr of social empowerment. owth of economy with respect [May/June - 2015) Answer : Economic development of a nation refers to an increase in the real per capita income over 2 long period of time. Adam Smith, the foremost classical economists, has not given much importance to the role of entrepreneurs in the economic development of the country, According to Adam Smith, the major determinant of economic development is the rate with which the capital is formed. hurdles in the achievement of economic develo| to be capat zople to save more and invest more in any country. According to him, the saving ability of the people is governed by enhanced productivity. Which can be obtzined by the division of labours based on their skills and efficiencies. Adam Smith, individual to this/her own judge with regards to one’s own interest. He pment was found considers ev cays that e2ch individual is guided by an ‘invisible hand’ in accomplishing their goals. He follows the policy of Laissez-faire in economic affairs. Economic development is considered as autornatic and self-regulated. Therefore, the classical economists w g an indifferent attitude towards the role’ of neurship in economic development of the country. This can be rightly stated as ty and entrepreneur even shadower or atleast is shady when posse: “The firm is a si 1B he is not shadowy”, + economic history of developed countries such as USA, USSR and Japan. nessed that entrepreneurship played a very important role in their t. In otherwords, “the economy is an effect for which je cause”. But, from th it has been i economic dev: ieve the goal of economic development it is essential to foster entrepreneurship both qualitatively and quantitatively. There exists only few enthusiastic active ents rs who can completely exploit the country’s potential but unutilized resources such as labour, capital and technology. : Several economists have proposed different roles for entrepreneurs as, (1) Schumpeter envisages that the entrepreneurs plays an important role in economic development because of their creativity and innovations. (2) Parson and Smelser regarded entrepreneurship as one of the essential elements of economic development and other being the output of capital (3) Harbison encompasses and incorporates entrepreneurs among the main movers of innovations. (4) Sayigh views entrepreneurship as an essential dynamic force OU[ASTUPDATES: Your accesso platformThe role of entrepreneurship differs from one economy to another. It depends upon several factors such as the easy availability of resources, skilled labour, less social and economic overheads and so on. If the conditions are favouring towards the entrepreneur's contribution then the national income of such countries would be relatively higher than that of the unfavoured economies. The entrepreneurs in the underdeveloped regions are referred as “imitators” but not an “innovators” as they only tends to imitate the innovations developed or initiated by the other entrepreneurs in the developed regions due to scarcity of funds, unskilled labour, social and economic overheads. Further, more innovation leads to huge expenditure than imitation which is less expensive. Mostly due to scarce funds and imperfect markets in underdeveloped regions, most of the entrepreneurs are establishing small-scale enterprises. As imitation needs less funds that innovation, the need is recognized to have more imitative entrepreneurs. It has been found that the imitation of innovation of developed countries proves to the result oriented in underdeveloped countries and increases the economic development at a faster pace. Proper imitation is not an easy task and requires the equal efforts and entrepreneurial ability as that of innovation. India being an underdeveloped country aims at decentralized industrial structure to achieve balanced regional development. Small-scale entrepreneurship plays a very important role in achieving the balanced regional development. It is clear that the smalil- scale industries provide quick large-scale employment, result in equitable distribution of national income and also leads to optimum and effective utilization of unexploited sources of capital and resources. Consequently, it is evident that India has recognized the significant role played by the entrepreneurs in the economic development from the fact that it had established various entrepreneurship development institutions. The role of entrepreneurship in the country’s economic development can be summarized as follows, (1) Entrepreneurship helps in accumulating capital through effective mobilization ‘of saving of general public. (2) Entrepreneurship declines unemployment which is the root cause of all social economic problems by providing quick large-scale employment. (3) Entrepreneurship develops BRD (Balanced Regional Development). (4) Entrepreneurship ensures equitable distribution of income, wealth and even political Power in favour of the public. (5) Entrepreneurship declines the concentration of economic power in the hands of few. (6) Entrepreneurship results in effective and optimum utilization of capital and resources. (7) Entrepreneurship helps the optimal utilization of capital and resources. OUTASTUPDATES? "Your sosces ou pltrm(8) Entrepreneurship helps in developing backward and forward linkages which further helps in economic development. (9) Entrepreneurship develops the country’s export trade, which is an important sources for economic development. Q22) Define economy of a national and explain how it is influenced by entrepreneurs, [May/June - 2015] Answer : Refer Q.No. 13 and The influence by entrepreneurs for economic of notions are as follows, (1) Entrepreneurs Introduce Innovations and Induce Economic Growth : Entrepreneurs often create new technologies, develop new products or process innovations, and open up new markets. : By establishing new businesses, entrepreneurs (2) Entrepreneurs Increase Competition : intensify competition for existing businesses. Consumers benefit from the resulting lower prices and greater product variety. Researchers have developed a measure of market mobility, which identifies the effects of new business formation on existing firms. (3) Entrepreneurs have Positive Employment Effects in the Short and Long-term and Negative Effects in the Medium Term : Entrepreneurs stimulate employment growth by generating new jobs when they enter the market. Research has shown (after disentangling all the potential effects) that beyond this immediate effect there is a more complicated. (4) New Businesses Boost Productivity : Competition between new and existing firms ideally leads to survival of the fittest. Even though overall employment may decline, new firms can boost productivity . The productivity-enhancing effect of business formation occurs in the medium term, when the employment effect is dominated by the displacement of existing firms. This happens for two reasons, (i) New firms increase competition ini the market and thus diminish the market power of incumbent firms, forcing them to become more efficient or go out of business. (i) Only firms with a competitive advantage or firms that are more efficient than incumbents will enter the market. The subsequent selection process forces less efficient firms (both entrants and incumbents) to drop out of the market. (8) Entrepreneurship Encourages Structural Change : Existing firms often struggle to adjust to new market conditions and permanent changes, getting locked into their old positions. They fail to make the necessary internal adjustments and lack the ability for “creative destruction,” . The entry of new businesses and the exit of worn-out firms can help to free firms from a locked-in position. Moreover, entrepreneurs may create entirely neW markets and industries that become the engines of future growth processes. OUTASTUPDATES? "Your sce our lation,