Rural Development: Administration and

Planning
By –Dr.Shobhana Singh

Unit-5- Rural Industrialization and

Entrepreneurship

Concept of Rural Industrialization

Rural Industrialization means encouraging location of large and small scale units away from
urban areas or planned shifting of units from urban areas to rural areas. • Rural
industrialization aims at all-round development of an area as well as people living in such areas.

Industries are places that manufacture goods or articles for the consumption of the masses.
Industries generate employment for the society. Industries contribute to the economic
development of a nation. Rural industries are non-farm activities that depend on rural resources,
and are primarily meant for employment generation through effective utilization of locally
available resources, human power and technologies that are native or home-grown. These are by
nature small-scale. These are usually based in villages. Hence, they are popularly addressed as:
small-scale industries / village industries / rural industries. Since employment generation is one
of the essential objectives of rural industries, they usually work with the philosophy of
production by masses-as opposed to mainstream industries where goods are mass produced. It
aims at reducing unemployment levels, and enhancing the individual and household incomes.
Since the scale of activities is small, the financial requirement is also usually small.

The Planning Commission first used the term “rural industries” when it recommended a rural
industries projects programme in the year 1962. In a report on Village and Small industries
sector, the Planning Commission (1988) defined rural industries in the following lines, “The
term ‘rural industries’ connotes such types of industries as khadi, Village industries, handloom,
handicraft, sericulture, coir and tiny and service industries situated in rural areas”.

Thus, rural industrialization includes economic activities outside agriculture, carried out in
villages and varying in size from households to small factories. Some examples of these
activities are cottage, tiny, village and small-scale manufacturing and processing industries; and
services of various kinds. Household industries have declined over time, whereas small scale,
non-household industries have expanded. Cottage enterprises – based on part-time family labour
– are relatively less efficient than small-scale, fulltime and specialized rural industries.

Significance of Rural Industrialization

The rural industrialization is considered as a vehicle for the generation of productive

employment and income for the generation of productive employment and income for the rural
poor. The significance of rural industrialization can be attributed due to following factors:

i) They can slow down urban migration and thereby ease the problems of urbanization.

ii) They lead to improvement in environment by reducing the concentration of industrial

units in big cities.

iii) They can increase rural income and generate nonfarm employment to the farmers.

iv) They can reduce both skilled and unskilled unemployment.

v) They can promote balanced industrialization by avoiding excessive industrial

concentration.

vi) They are based on the local needs and can better meet the local consumption needs.

Gandhian Approach to Rural Industrialization:

Gandhian strategy of rural reconstruction was based on village swaraj and swadeshi
movement. The basic principle of village swaraj as outlined by Gandhiji are trusteeship,
swadeshi, full employment, bread labour, self-sufficiency, decentralisation, equality, Nai Talim
etc.

'Rural Industrialization' was never the term used by Gandhi. However, two basic components of
Gandhian development, self-sufficient villages and decentralization of economic and political
powers, gave a very important place to development of Khadi and Village Industries. According
to a recent study the Khadi movement was not only a mass mobilization movement against anti-
imperialist struggle, it was also a social movement of recognizing women's capacity as
economically and politically active beings without whose support the goal of freedom or Swaraj
would be unattainable and meaningless. In fact, Gandhi's well known concept of 'Living Wage
For Spinners' originated in his realizing the danger of women being paid low wages even by
constructive workers.
Gandhi's clear rationale behind the choice of Khadi was led by his anxiety of "Work to all". He
believed that Khadi and Village Industries were the only alternative. This is evident from his
statement of challenge to rulers to whom he stated that, "If the government could provide full
employment to all without the help of Khadi and Village Industries, I shall be prepared to wind-
up my constructive programme in this sphere". He said, "Production of Khadi includes cotton
growing, picking, ginning, cleaning, carding, slivering, spinning, sizing, dyeing, preparing the
warp and woof, weaving and winding. These, with the exception of dyeing, are essential
processes every one of which can be effectively handled in the villages".
Although 'Khadi' is the sun of the village solar system, various other industries, like planets, do
have a place in the village solar system and in fact, "Those who do not see Khadi as the centre of
village activities, they are welcome to concentrate their efforts on these other industries",
because a village economy can not be complete without essential industries such as hand
grinding, hand pounding, soap making, paper making, metal making, tanning, oil processing, etc.
Gandhi had anticipated a complimentary relationship between Khadi and Village Industries. He
believed that these industries come in as hand made to Khadi. They can not exist without Khadi
and Khadi will be robbed of its dignity without them.
Gandhi had not perhaps conceptualized the Khadi and Village Industry except once when he
stated that 'Khadi of my conception' is that hand spun material which takes the place entirely, in
India, of mill cloth........and indirectly explained what is Khadi. If men and women will not take
to hand spinning as a sacred duty, that is, the same person will not do carding, slivering and
spinning, there is little hope for Khadi.

Appropriate Technology for Rural Development

Rural India faces a severe technology deficit. While there are other serious shortages power,
water, health facilities, roads, etc, these are known and recognised. However, the role of
technology in solving these and other problems is but barely acknowledged, and the actual
availability of technology in rural areas is, at best, marginal. The so-called digital divide is
widely spoken and written about; the technology divide is hardly mentioned.

The backbone of the rural economy is agriculture, which also provides sustenance to over half
the countrys population. Science and research have played important roles in increasing yields.
The green revolution of the 1970s was, in fact, powered by the scientific work in various
agricultural research institutions. While some fault the green revolution for excessive
exploitation of water and land resources and over-use of fertilisers, it did bring about a wheat
surplus and prosperity in certain pockets of the country. Now, it is time for technology to play its
role in transforming rural India.
 Science and technology are often hyphenated and spoken of in the same breath. One
would, however, like to differentiate the two. Technology generally (though not always)
derives and draws from science, and often manifests itself in physical form for example,
as a piece of hardware. Science, on the other hand, is knowledge. In rural India, there is a
dire inadequacy of both. Crop yields are, therefore, far lower than what they are in
demonstration farms, where science and technology are more fully applied. The scope to
apply technology to both farm and non-farm activities in rural areas is huge, as are the
potential benefits.

In irrigated areas (a third of the total arable land), managing the release and distribution of water
is critical for maximising production. Sophisticated power transmission systems use information
and communication technologies to effectively optimise and monitor the distribution of
electricity. Despite many similarities, there is hardly any use of ICT in water distribution.

In rain-fed areas, the construction of bunds and check-dams is vital. Choosing the right location
for such water-harvesting structures can be greatly facilitated by using satellite remote sensing
data, as pilot projects have already demonstrated. Where irrigation is from wells, the simple
technology for the pump to be automatically switched on when power is available (and a timed
switch-off) so common in cities is still rare in villages. As a result, the farmer has to manually
switch on the pump generally in the middle of the night, when power becomes available.

Technologies that reduce power consumption of pumps are vital; unfortunately, their use is
minimal, since agricultural power is free or largely subsidised. Similarly, there is little incentive
to optimise through technology or otherwise water use, especially in irrigated areas, given the
water rates. Post-harvest technologies for processing and adding value could greatly enhance
rural employment and incomes, but at present deployment of technology is marginal.

Cold storage and cold-chains for transportation to market is of great importance for many
agricultural products particularly, fruits and vegetables but are non-existent. These are clearly
technologies with an immediate return on investment, and benefits for all: the farmer, the end-
consumer, the technology provider. However, regulatory and structural barriers are holding back
investments.

Information related to commodity prices, transportation, agricultural practices, weather, etc., are
crucial for the farmer. Technology can now provide this easily and instantaneously either at a
village computer kiosk or on a mobile handset. Transactions, including purchase of agricultural
inputs, but also other goods and services, can also be handled on such kiosks or on a mobile
phone. All these technologies are proven; the challenge now is to ensure connectivity and scale
them.

Power is a key requirement in rural areas, for agricultural as well as non-agricultural and
domestic uses. Technology is now capable of providing reliable power at comparatively low cost
in a decentralised manner. This needs to be upgraded and scaled in a big way, with emphasis on
renewable and non-polluting technologies. An all-terrain, reliable and low-cost means of
transporting goods and people is an essential need for rural areas. In addition, it must be robust,
low-maintenance and near-friendly. The bullock-cart and the tractor-trailer are present vehicles
of choice. Surely, technology can provide a better, cheaper and more efficient solution?

Water is known to be responsible for a majority of the health problems in rural areas. While
many technologies exist for water-purification, there is need for developing context-specific
technologies (ideally, low-cost, reliable and not power-dependent) for providing safe drinking
water. Another vital area largely untouched by technology is sanitation. On the other hand, fuel
for cooking has drawn attention (efficient smoke-less chulas; briquettes, solar-cookers), but cost-
efficient technologies that fit the socio-cultural milieu are yet awaited.

These examples point to a pressing need and an exciting challenge, representing a unique three
dimensional convergence of technological capability, economic opportunity and societal need.
The time is now ripe for this convergence: the growth of India’s technology base has resulted in
far greater capability to meet the needs. At the same time, economic growth though skewed and
iniquitous has created an economically attractive market in rural India.

Entrepreneurship and Rural Industrialization

Rural entrepreneurship is defined as entrepreneurship whose roots lie in the rural

areas but has a lot of potential to drive various endeavors in business, industry,
agriculture, etc. and contribute to the economic development of the country. ... This leads
to migration of people from rural to urban areas.
Broadly rural entrepreneurs fall into the following categories:
1. Farm Entrepreneurs
These are people whose primary occupation and main source of livelihood, is farming. Persons
not having land or other farming resources but are willing to take up an enterprise in the village
that will aid agriculture, can be regarded as farm entrepreneurs.
2. Artisan Entrepreneurs
These entrepreneurs represent the skilled persons in rural society. Such skills are either acquired
through professional training in association with their kinship group, or through inheritage as for
example, blacksmithy, carpentry, etc.
3. Merchant and Trading Group
This includes primarily the business community of rural areas who form a small segment of rural
population. It shares the larger trades in the community. These people are perceived as
traditionally exploitative class and play the role of middleman in business to the pursuit of any
vocation in the rural areas.
4. Tribal Entrepreneurs
Tribal entrepreneurs are predominantly in tribal villages and could be regarded as an
entrepreneurial class by itself. Their source of origin is the tribal community. Their
entrepreneurship may however lead to the pursuit of any vocation in the rural areas.
5. General Entrepreneurs
Some examples of this class are high school drop-outs, educated-unemployed, landless labourers,
wage earners, and persons belonging to the scheduled castes, etc.
The rural entrepreneurs can initiate their enterprise in any of the category classified as rural
industry.
i. Forest based industries that include honey making, beedi making, bamboo products, cane
products, wood products, coir industry, etc.
ii. Agro based industries include processing and sale of agricultural products such as pickles,
jiggery, juice , fruit jam, dairy products, products made out of rice, oil processing from oil seeds.
iii. Mineral based industries include stone crushing, cement industries, making of idols,
decorative items made from marble and granite.
iv. Textile industry includes weaving, spinning and dying of clothes. This industry incorporates
within its ambit khaddi, tusar silk, muga silk.
v. Enterprises based on handicrafts include decorative and household products like made out of
cane, bamboo and wood available in the area.
vi. Engineering industries include making and repairing of parts of agricultural equipments, tools
and implements, parts of machinery etc.

Problems and Diagnosis of Rural Entrepreneurship in India

The entrepreneurs of rural India are confronted by an array of obstacles and hindrances. The
problems faced by the rural entrepreneurs crop up owing to the socio-economic, political,
cultural, business environment in which they exist.
The major problems faced by the rural entrepreneurs are discussed below:
1. Illiteracy:
The level of literacy is a serious handicap for the aspiring rural entrepreneurs. They find it very
difficult to understand the nitty- gritty of business activities, the changes in technological
environment and the prospects of different sectors of business. Besides, in the rural areas, the
rural entrepreneurs have to tackle the problem of illiteracy among the labour force available.
The levels of literacy of the workers affect the business prospects of the rural entrepreneurs and
is thus as a serious challenge. The rural entrepreneurs owing to the low level of literacy find very
cumbersome to understand and comply the legal formalities.
2. Lack of Experience:
The rural entrepreneurs are mostly the first generation entrepreneurs. They a rarely endowed
with rich experience of entrepreneurship. It is obvious that they have to compete with the people
with rich experience.
3. Purchasing Power is Limited:
Lack of purchasing power is a serious handicap for the rural entrepreneurs. Leaving aside few
exceptions, the rural entrepreneurs face the crisis of lack of capacity to purchase resources and
machineries.
4. Threat from the Existing Urban Entrepreneurs:
The urban entrepreneurs are believed to be in an advantageous position. They have better access
to information, technology, business prospects, credit facility and etc. The rural entrepreneurs
ultimately have to compete with the urban counterparts who are placed in an advantageous
situation.
5. Lack of Funding:
The entrepreneurs of the rural areas find its challenging to generate external funds owing to the
absence of tangible security. Moreover, the lack of credit facilities also adds to their plight. They
often borrow from the unorganized financial sector and get thwarted.
6. Existence of Middlemen:
The existence of different levels of middlemen is a serious problem for the entrepreneurs of rural
areas. Rural entrepreneurs are often dependent on the middlemen and in the process get
exploited.
7. Procurement of Raw Materials:
The rural entrepreneurs have to face serious hurdles in procurement of raw materials. Usually the
suppliers neglect the upcoming rural entrepreneurs because initially they are small size firms.
The rural entrepreneurs also face the problem of warehousing and storage. Entrepreneurs using
perishable raw materials don’t have easy access to cold storage facilities within the rural areas.
8. Lack of Technical Skill:
Rural entrepreneurs face a severe problem of lack of technical knowledge. There are two
problems associated with. First, the rural entrepreneurs do not keep themselves updated with
information of technological developments. Second, the employees and workers without
technical skill affect productivity.
9. Lack of Training Facilities:
The lack of training and skill development facilities in rural areas is also a serious problem. The
rural entrepreneurs find it very difficult to train and develop their workers in order to enhance
their productivity.
10. Low Level of Infrastructural Facilities:
Usually the level of roads, communication facilities and electricity supply in rural areas are
below standard. The low level of infrastructural facilities retards the development of rural
entrepreneurship.
11. Poor Quality of Products:
The entrepreneurs of the rural areas find it extremely difficult to maintain high level of standard
in their products and services. They lack the proper information about the prescribed standards
owing to lack of access to internet. They also do not have the standard tools and equipments.
12. Lack of Positive and Inspiring Atmosphere:
In most of the cases, the rural entrepreneurs are not born and brought up in an environment that
promotes entrepreneurship. The social environment, family customs, traditions are not conducive
to encourage youngsters to take up entrepreneurship. The rural areas lack the awareness and
knowledge of entrepreneurial opportunities.
13. The Element of Risk Involved:
Rural entrepreneurs unlike their counterparts are not well equipped to undertake heavy risks. The
rural entrepreneurs have less risk bearing capacity due to lack of financial resources, credit
facilities and external support.

Diagnosis of these problems: Government Efforts, Policies, Schemes

and Prospects

Government Efforts:
The Rural Employment Generation Programme (REGP) implemented by Khadi and Village
Industries Commission (KVIC) covers all viable village industries projects except those
specified in the negative list of KVIC. 119 rural industries are specified under seven heads for
financing by banks, with KVIC support for margin money.
These heads are mineral-based industries, forest-based industries, agro-based and food
industries, polymer and chemical-based industries, engineering and non-conventional energy,
textile industry (excluding khadi), and service industries. Further, rural development
programmes like IRDP, TRYSEM, SWVRA, and Jawahar Rozgar Yojana have been
concentrating on target groups and rural infrastructural facilities.
There are signs of inter-sectoral coordination and schematic linkages getting strengthened at the
grass root level. Voluntary efforts too are getting due recognition and being provided an impetus
through policy support. The action plan of the government desires to spend half of national
resources on rural development.

Rural Industrialization Programme:

Non-farm sector (NFS) activities located in rural areas and urban areas up to one lakh population
are covered under the rural industrialization programme. Under the programme, financial support
and incentives are given to entrepreneurs for setting up manufacturing and service enterprises in
the mini, micro, small, and medium.
The National Bank for Agriculture and Rural Development (NABARD) provides refinance for
investment made in agro- industries, sericulture, and marketing of rural non-farm sector
products, irrespective of the location. For other industries in locations up to 50,000 populations,
refinance is sanctioned by NABARD.
Decentralised industrial development through traditional industries covered by a few All India
Boards (like Central Silk Board Coir board, Central Wool board) and bodies such as – KVIC, All
India Handloom Board, and All India Handicrafts Board are also part of the rural
industrialization programme.
Several other agro, food processing, and mineral-based industries including power looms located
in rural and semi-urban areas up to one lakh population are also included in this programme.
In the rural industrialization programme, an integrated approach is being pursued by identifying
clusters of industries. The package of measures can include the following – credit, technology up
gradation modernization, technology transfer, marketing including exports wherever practicable,
infrastructure development, common services, supply of raw materials, etc.
The National Programme for Rural Industrialization (NPRI) was implemented for five years
from 1999-2000 to 2004-2005, using the cluster approach. The institutions involved in
implementing this programme are KVIC, and other decentralized organizations, like Small
Industries Service Institutes (SIVI), NABARD, and SIDBI.
The NPRI scheme has a provision for extending financial assistance up to Rs. 5 lakh per cluster
for various interventions. The programme has been subsumed under the Scheme of Fund for
Regeneration of Traditional Industries (SFURTI) from 2005-06, as the latter provides a much
more comprehensive approach to cluster development.
In each cluster, through a study of individual enterprises, requirements of the group are finalized
taking into account the long-term perspective of the growth of the industry in the context of
liberalization. The programme of work includes conducting motivational campaigns,
entrepreneurial training, and skill up gradation of artisans and prospective entrepreneurs in rural
and urban areas.
Policies and Schemes:
The government of India has been undertaking a number of schemes to directly or indirectly
enhance rural entrepreneurship. These schemes directly or indirectly help in promoting rural
entrepreneurship.
1. Training of Rural Youth for Self-Employment (TRYSEM) was a scheme that was aimed at
providing basic technical and entrepreneurial skill to the rural poor in the age group of 18-35
years in order to enable them take up income generating activities. The scheme was merged into
Swarnajayanti Gram Swarojgar Yojana (SGSY) with IRDP, DWCRA etc. from April, 1999.
2. Swarnjayanti Gram Swarozgar Yojana (SGSY) aims at bringing the assisted poor families
(Swarozgaries) above the Poverty Line by ensuring appreciable sustained level of income over a
period of time. SGSY aims at organiging the rural poor into Self Help Groups (SHGs) through
the process of social mobilization, their training and capacity building and provision of income
generating assets. SGSY stresses that instead of funding diverse activities; each block should
concentrate on a few select activities (key activities) and attend to all aspects of these activities,
so that the Swarozgaris can draw sustainable incomes from their investments.

Small Scale entrepreneurship in India:

In a developing country like India, Small Scale Entrepreneurship plays a significant role
in economic development of the country. These industries, by and large represent a stage
in economic transition from traditional to modern technology after globalization. The
variation in transitional nature of this process is reflected in the diversity of these
industries. Most of the small scale industries use simple skills and machinery. Besides
playing economic role in the country, small scale industries, because of their unique
economic and organizational characteristics, also play social and political role in local
employment creation, balanced resource utilization, income generation and in helping to
promote change in a gradual and peaceful manner.
The study of entrepreneurship is essential not only to solve the problem of industrial
development but also to solve the problems of unemployment, unbalanced areas
development, concentration of economic power and diversion of profits from traditional
avenues of investment. In this backdrop, the present study attempts to get insights to
review, in brief, the evolution of the concept of entrepreneurship, the definition of small
scale enterprises and also to study the small scale entrepreneurship in India.

Contribution of Small Entrepreneurs

The fact is very well known to everyone that in many developing countries which
includes India as well, society depends on the business skills of the small entrepreneurs
to keep their lives going and their existence well-oiled means that small entrepreneurs are
as important as the big names who succeed. Also, the nature of a developing economy is
quite different from a developed economy. The developing economy can be an
agricultural country moving towards the industrialization or it may be the one where in
the industry may be in its infancy lacking advance technology. In such cases, the
existence of small-scale businesses and entrepreneurship acts as the oil to the engine,
offering various kind of support to the nation. Accept it or not, but developing countries
like India runs because of the commercial exchange between the people and the small
entrepreneurs such as the newspaper delivery vendors, the milkmen, the neighbourhood
grocers, the vegetable vendors, the courier companies, and most importantly, small
businesspersons such as the service agencies who handle everything from plumbing to
electrical repairs to those who specialize in arranging pickups and drops of goods and
services. Apart from that small entrepreneurship also provides supports in various other
ways.

Entrepreneurs are providing great offers in the form of opportunities to many associated
domains. Unemployment is a chronic problem in most of the developing and
underdeveloped countries. Entrepreneurs play an effective role in reducing the problem
of unemployment in the country which in turn clears the path towards economic
development of the nation. From offering opportunities in call centres & BPOs to
offering employment to rural women’s in various small firms/factories and construction
sites, entrepreneurs help the society with many job opportunities. In simple words, an
entrepreneur benefits a large part of the economy.

Entrepreneurs mobilize the idle funds which lead to capital formation. The funds which
are used by entrepreneurs is a mix of their own and borrowed. This leads to the creation
of wealth which is very essential for the development of an economy. Moreover, in our
country, the growing numbers of entrepreneurs are resulting in high earnings that directly
contribute to the national income of the country.
 Small business promotion needs relatively low investment and therefore can be easily
undertaken in rural and semi-urban areas. This, in turn, creates additional employment in
these areas and prevents the migration of people from rural to urban areas. Small
enterprises use local resources and are best suited to the rural and underdeveloped sector.
This provides stable development.

Entrepreneurs play a vital role in achieving a higher rate of economic growth while
creating better standards of living. Entrepreneurs are able to produce goods at lower cost
and supply quality goods at a lower price to the community according to their
requirements. When the price of the commodes decreases the consumers get the power to
buy more goods for their satisfaction. It is also assisting a lot in reducing the dependency
level on outdated systems and technologies thus, helping in improving the standard of
living, culture and great economic growth as well.

Entrepreneurs act as a catalytic agent for change which results in a chain reaction. Once
an enterprise is established, the process of industrialization is set in motion.
Entrepreneurs also invest in several other things that include community projects. They
are also providing financial assistance to local charities. If we talk about famous
entrepreneurs such as Bill Gates who has used his hard-earned money for causes starting
from education to health.

Scope of rural entrepreneurship:

Rural entrepreneurship is active and is opening new scopes for the entrepreneurs and are
discussed as follows:
⦁ Rural area has the capacity of small and medium enterprises and these sectors acts as the
economy builders by generating Employment and income for poor and unemployed people
and is contributing more than 52% of the GDP.
⦁ Moreover, there is a rapid expansion in the small and medium industry arena. Therefore,
Repair shops, service centers, PCO, internet café, hiring of agriculture implements &
tractor, computer and other skill training centers have good scope in cluster of villages.
⦁ Entertainment, cable TV ,rural tourism and amusement parks (near urban areas) also are a
number of the potential areas for rural entrepreneurs in commission sector
⦁ Various development programs are being executed through Panchayti Raj Institutions,
who are engaging contractors for civil /mechanical works. Rural youth can start this
business.
⦁ Changed consumption pattern has opened up new avenues for trading activities in rural
areas.
⦁ Rural areas are also using large amount of agriculture products like fertilizers, seeds,
pesticides and insecticides etc.
Need for Rural Entrepreneurship