Rural Entrepreneurshipfor Development Mukesh Vats
Topics covered • INTRODUCTION • CONCEPT OF ENTREPRENEURSHIP • RURAL URBAN DIVIDE • RURAL ADVANTAGE • BASIC TRAINING FOR PROSPECTIVE RURAL ENTREPRENEUR • BENEFITS OF RURAL ENTERPRISES TO NATION • GOVERNMENT STRATEGIES • FACTORS RESPONSIBLE FOR LIMITED GROWTH • HOW TO MOVE FORWARD • OWNERSHIP PATTERN • GATHERING IDEAS
Topics covered (contd..) • GATHERING INFORMATION • PROJECT REPORT • SOURCES OF FINANCE LEGAL REQUIREMENTS • MARKETING ISSUES • TRAINING/SKILL DEVELOPMENT • BASIC INFRASTRUCTURE • OPPORTUNITIES FOR RURAL ENTREPRENEUR • RURAL TECHNOLOGIES • PURA AND RURAL ENTERPRISES • WAY AHEAD • SUM UP
INTRODUCTION • The farming activity is itself an example of entrepreneurship as it has all elements of an enterprise i.e. land, labour, process, technology, inputs, finance, risk, marketing etc. • Our farmers invest money, labour and inputs to get the final out put i.e. harvest. • However, the income level of the farmers/rural people is much lower than the urban people. • We have discussed various reasons while learning about processing and marketing etc. • Sometimes, it is said that risk taking capacity of rural people is lower than the urban people, which is not correct.
Contd… • Agriculture itself is a high risk low return activity, and farmers are taking risk year after year to increase the agriculture production. • The farmers can prove to be better entrepreneurs if proper training is provided • Several advantages are there in rural areas specially in respect of agro-products and animal husbandry related industries. • Since the farming is seasonal activity, the farmers can start and run small and micro enterprises.
Contd… • In the present scenario ,the rural areas are source of raw materials and the urban areas are acting as processing centers. • This reminds us the typical set up during industrial revolution when colonies were source of raw materials and European Nations were processing and selling back the same to undeveloped nations. • Prosperity will not come to rural areas unless the value addition takes place at the rural areas itself.
Contd…. • The absence of entrepreneurship in rural areas is main cause of poverty in rural areas. • The farmers are at loss whether ,it is bumper crop or famine. • Establishment of micro or household industries in rural areas can break the cycle of poverty . • This will not only bring prosperity but also provide employment to youth and landless people. • The energy of womenfolk can be used for productive purpose with establishment of small and micro enterprises in rural areas.
Contd… • This will also result in saving of huge amount of energy in form of transportation of bulky raw materials and manpower going daily to nearby urban areas for employment. • The present discussion will be focused on issues related to prospects and problems related to entrepreneurship in rural areas and also the various activities which can be taken up without huge investment and specialized know-how.
CONCEPT OF ENTREPRENEURSHIP • The entrepreneurs were earlier referred as persons participating in military expeditions. • Now the person/ group of persons who start a business or expand the existing business with full knowledge of risks involved are said to be entrepreneurs. • The following qualities are important for any person to become an entrepreneur. • Motivation-Self motivated persons with desire to perform better. • Energetic: capacity to work for long hours.
Contd…. • Creative:finding simple solutions rather than discussing problems. • Flexibility : as the business environment is dynamic and demand ,supply ,products etc. keep changing rapidly ,flexible approach is required. • Analytical powers :keeping the risk and uncertainty involved in business, the analytical power is required to calculate the risk take appropriate measures to manage it.
Contd…. • Leadership: since various people are involved in business at various levels, leadership qualities are needed to bind them as an organization. • Vision: Since the enterprise is considered to be “going concern”, the person handling the business must have vision towards future and take steps to avoid redundancy. • The qualities described above are only indicative, in addition to those indicated above the rural entrepreneur should have additional qualities.
Contd…. • In a typical rural scenario the person has to deal with problems of infrastructure. • The socio –economic set up in rural areas is different and the person of rural background will have advantage. • Similarly, knowledge of local language and customs is also necessary for any entrepreneur. • A farmer owning and cultivating land in same village will be ideal person to start a micro or medium enterprise. • Taking advantage of forward & backward linkages is key to success for any rural entrepreneur.
Agriculture as primary occupation. Generally under-employed people Lack of infrastructure Low cost of labour and land Cheap local raw materials Variety of occupation People having more than one employment Over burdened infra High cost of labour and land Costly raw materials RURAL URBAN DIVIDE
Poor education and training facilities More prone to natural disasters Difficult access to technology High marketing cost Poorly organized Migration of talent to urban areas Better education and training facilities Less prone to natural disasters Easy access to new technology High production cost Highly organized Over population due to migration (Contd..)
RURAL ADVANTAGE • Having gone through the advantages and disadvantages of rural areas as far as establishment of industries is concerned we may observe that following type of industries can be established in rural areas: • Labour intensive: food processing, herbal medicines, assembly units etc. • Space intensive: bio mass based (paper/pulp), livestock based etc. • Low capital: small, tiny and cottage industries like handicrafts etc.
Contd… • Industries without power: like vegetable dyes, terracotta etc. • Seasonal: like sugar, khandsari production • Service based: service centers for agriculture implements, e-chaupals etc. • Skill training based: small computer training institutes and other skills in demand.
BASIC TRAINING FOR PROSPECTIVE RURAL ENTREPRENEUR • We certainly do not require MBAs to run or start rural enterprises. • Some basic training is necessary for rural people to become prospective entrepreneur. • Motivation through success stories and actual visits to successful enterprise in the area • Information related to government agencies and their role • Systematic way of identifying opportunity • Access to model projects or sources for preparation of project reports
Contd… • Sources of finance • Government programmes or subsidies • Knowledge of accounting • Training in the area selected by prospective entrepreneur • Certain general aspects will be discussed in detail ,however in a dynamic environment things are changing too fast and latest information must be collected by person.
BENEFITS OF RURAL ENTERPRISES TO NATION • The trend of establishment of rural industries will reverse the migration to urban areas. • The ever increasing slums in urban areas will be reduced. • The crumbling infrastructure of urban areas will get a reprieve. • Nation will save huge sum of money in form of fuel. • The reduced cost of production may result in higher exports and import substitution of small value goods.
Contd….. • It will unlock potential of crores of under-employed people and increase the GDP of nation. • Use of non conventional sources of energy will be encouraged as vast potential for use of bio gas, solar energy, wind and water energy exist in rural areas. • The large amount of agriculture, horticulture and animal husbandry related produce going waste will be gainfully utilized. • Public Investment in rural infrastructure will give higher returns and it will encourage private investment.
GOVERNMENT STRATEGIES • Mahatma Gandhi was one of the prime supporters of khadi and village industries even before industries. • One of the basic philosophy was to keep the three basic needs of human beings out of purview of mechanization to generate employment i.e. food, shelter and clothing. • After independence ,the development strategies were worked out in the form of five year plans. • The first plan :Boards were created for development of six specific rural sectors i.e. khadi, coir, silk, handicrafts, handlooms, small industries.
Contd…. • Second five year plan: Role and activities of KVIC increased. Items reserved for small scale industries. Technologies resulting in unemployment were discouraged. • Third five year plan: cluster development approach initiated, training and skill development projects were launched. Rural Industries Project was launched. • Fourth five year plan: emphasis on quality and financial viability of rural industries. Provision of financial assistance to KVIC for various programmes.
Contd…. • Fifth five year plan: Agriculture was given less importance as compared to industries. • Sixth five year plan: Programmes named IRDP and TRYSEM were launched to promote rural entrepreneurship. The programme introduced the concept of subsidy and self employment first time to rural people. • Seventh five year plan: The strategy of the plan was to enhance the level of earnings of small enterprises by providing assistance in form of technology, entrepreneurship skills and finance.Several dedicated institutions like Small Industries Service Institute
Contd…. • National Institute of Small Industries Extension and Training, National Institute of entrepreneurship and small business development ,NSIC,DIC etc were activated to provide extension service to small industries. • Eighth five year plan: The focus was shifted from rural & cottage industries and era of reforms started. The emphasis was to invest in infrastructure and catalyze the growth. Private investment welcomed in all sectors. Reserved items were removed from list one by one.
Contd…. • Ninth five year plan: agenda of globalization was taken further. Separate ministry was created for small scale and agro industries. Marketing support for KVI products was planned. • Tenth five year plan: Cluster based development was proposed with financial assistance from KVIC, NABARD, SIDBI and CAPART. • Eleventh Plan: Technology up gradation, skill development and quality improvement with focus on employment generation.
Factors responsible for limited growth • Though we have already discussed about the disadvantages /advantages of rural areas as far as growth of enterprises is concerned. • Some external factors were also responsible for limited development of rural enterprises. Though the factors indicated below can be reversed in favour of rural industries: • Subsidy and target oriented programmes encouraged people to somehow avail the subsidy and the enterprise could not sustain for long.
Contd….. • Technology developed at faster rate and the rural people could not get the benefits. • The electronic media diverted the attention of youth from enterprise to wage employment or jobs for easy life, it also promoted migration. • The limited infrastructure expenditure was concentrated to urban areas as private investment was not allowed. • The image of rural enterprise was limited to “khadi cloth”, “achar –murabba” or “kachhi ghani oil”, which resulted in rural areas becoming source of raw materials only.
HOW TO MOVE FORWARD • We have discussed about the past and problems, but future of rural industries is bright. • The growing concern about environmental degradation and reducing carbon emission opens a flood gate of opportunities for rural industries, low technology, low energy intensive and natural products. • Increasing interests in organic products, chemical free cosmetics and vegetable dyes etc can open a flood gate of opportunities for rural industries. • Export of small items from toys to school bags has boosted Chinese economy and made it a world leader in economic development.
We will now discuss about the options, sources of finance and technologies available to youth for starting new enterprise. • As and when a person decides to start an enterprise, he has choice to take up any of the following : • Manufacturing or processing • Trading ,retail sales ,distribution etc. • Service sector • Contracting • Combination of above activities
OWNERSHIP PATTERN • The rural enterprise can be owned in one of the following ways: • Individual ownership (in most of the cases, this pattern is there) • Partnership or private limited companies (when the business grows ,the above formations take place for expansion) • Cooperatives: these institutions have legal identity and formed by willing people for achieving a common goal. • Group ownership : It includes NGOs, VOs, JLGs
The groups like, self help groups though do not have formal structure but they can run an enterprise and also eligible for bank finance. • The choice of ownership pattern will depend on the type of business activity and requirement of manpower or money required for the particular enterprise. • For example, a forest produce based activity is generally taken up by group of persons in form of cooperatives or self help groups. • However in case of trading, the best structure is individual ownership.
Proprietorship or individually owned enterprises • In this case the individual called Proprietor is absolute owner of the enterprise. His liability is 100%. • This structure is best suited for small enterprises where capital requirement is low and many legal complications are not there. • The sense of ownership and passing the business to next generation are best motivators. • However ,this type of organizations have limited access to the bank funds and no access to public funds in form of shares.
PARTNERSHIP CONCERNS • Partnership concerns can have maximum 20 persons as partners working together for common goal and objective. • The firms are governed by Indian Partnership Act 1932. • The partners can take advantage of best abilities of each other and pool the resources for enterprise. • It is always better to have a written agreement to avoid any legal issues later on. • The partnership concerns fail when the duties and responsibilities of partners are not clearly defined.
PRIVATE LIMITED COMPANY • The private limited companies can have 2-50 shareholders • The liability of the shareholder is limited in this case ,as the personal assets are separate from the assets of the shareholders. • The promoters of public limited companies have better control on day to day affairs of the company . • The private limited companies have better access to bank finance . • This type of organization is suitable for medium level business.
PUBLIC LIMITED COMPANIES • The public limited companies can have minimum 7 shareholder and there is no limit on maximum number. • The company can raise money from general public by issuing shares or debentures. • The public limited companies have to follow the norms and laws as per companies act 1956. • Such organizations are generally out of purview of rural enterprise as the size of business is small, however a successful entrepreneur can convert the small enterprise into company.
NGO / Voluntary Organizations • A group of 7 or more persons can start NGO for public service and specific objective. • The NGOs are registered under Society’s Registration Act 1860. • Specific rules and regulations are formulated to manage the day to day affairs of NGOs. • These organizations can receive government grants or public donations. • The voluntary organizations are registered under any of the act like Indian Trust Act, Society’s Registration Act etc. • These organizations are promoted by self motivated, social service oriented people.
SELF HELP GROUPS • These are informal groups of 10-20 persons from below poverty line families. • The groups are formed for mutual help and people pool there small savings for mutual benefits on agreed terms. • The groups are eligible for bank finance and can graduate into joint liability groups for starting rural enterprises. • Various schemes of GOI & NABARD are available for the SHGs so that the members can come out of the cycle of poverty.
COMMUNITY BASED ORGANIZATIONS • The CBOs are also informal organizations. • They come together for common cause or objective, however there economic status may be different. • They also receive funds from various donors and GOI . • There is no liability on part of members as the donor agencies make necessary enquiries before release of funds.
CO-OPERATIVES • These are association of persons coming together for common objectives, and the organizations are controlled by elected boards and functioning of organization is based on democratic principles. • There could be different types of cooperatives like producers, marketing, credit or housing etc. • The cooperatives could be single state or multi state. • The success of AMUL in milk processing and marketing is an example for entire world but we could not replicate the same….why??
Gathering ideas • Either the entrepreneur himself acts as innovator or he can contact certain institutions to get business ideas suitable for rural areas. • The following institutions are dealing in this area: • KVIC • NABARD • SIDBI • EXTEN. CENTERS OF AGRICULTURE UNIV. • NIDC,NIESBUD • TECHNICAL CONSULTANCY ORG IN EACH STATE • CENTERS FOR ENTREPRENEURSHIP DEVELOPMENT • DEVELOPMENT COMMISSIONER HANDICRAFTS/ COTTAGE INDUSTRIES
Contd….. • Some institutions are dealing purely in business ideas related to agriculture produce: • ICAR & ITS EXTENSION CENTERS • CFTRI • NHB • NATIONAL MEDICINAL PLANT BOARD • APEDA • NATIONAL INSTITUTE FOR ORGANIC FARMING • NBRI • CIMAP • FLAVOURS & FRAGRANCES DEVELOPMENT INSTITUTE ETC.
GATHERING INFORMATION • Once a person decides to start a business, he has to gather certain information related to business whether external finance is involved or not. • Similar enterprise in area and its viability. • Availability of raw materials (nearby /source) • Technology or know how • Availability of labour and skilled persons • Marketing channels • Related government policies/promotional scheme • Prospective buyers and demand pattern etc.
PROJECT REPORT • Once an entrepreneur firms up the type of enterprise proposed to be established he will have to make a project report even if institutional finance is not involved. • The project report helps the person to take objective decisions and also compare the data at the time of planning and actual implementation. • The following information is required for a typical rural enterprise: • Name of entrepreneur and nature of the enterprise.
Contd…. 2. Demand for the item, planned capacity and production schedule 3. Source of raw materials, present cost and approximate quantity required. 4. Technology and skill required including cost 5. Manpower requirement 6. Cost of building, plant and equipments 7. Recurring expenditure 8. Finance required at initial stage and the source 9. Financial appraisal showing viability of the project by methods such as IRR, BCR etc.
SOURCES OF FINANCE • All entrepreneurs are not financially sound and may require assistance from financial institutions or banks for the project. • Various sources of finance are; • Commercial Banks • Cooperative Banks • Agriculture and Rural Development Banks • Regional Rural Banks • SIDC of various states • Non Banking Finance Companies Subsidies are also available under various government schemes.
LEGAL REQUIREMENTS • Though the household and cottage industries do not require any registration, the small scale industries require registration with DIC. • Registration with Trade Tax, Service Tax etc. is also required depending on nature of work • In case the enterprise can be classified as industry, the following laws are also applicable: • The Factories Act • The Industrial Dispute Act • The following laws are applicable even if the enterprise is not classified as industry:
(Contd..) • Minimum wages act • Payment of gratuity act • ESI Act • Payment of wages act • Payment of Bonus Act • Prohibition of child labour • Pollution control act • Other specific laws applicable to various type of activities
Marketing issues • Marketing of rural produce is prime concern for the rural entrepreneurs . • The rural areas act as markets for the person choosing service industry or trading as business. • However, the urban areas and other villages act as markets for the manufacturing or producing enterprises. • Some of the rural products even have export markets . • Depending on the type of products market mix can be planned.
(Contd..) • Direct marketing to bulk consumers (e.g. hotels for primary or secondary processed foods) through contacts. • Marketing through retail outlets of KVIC • Participating in mela, haat or exhibitions • Direct sales to whole sellers/exporters • Direct sales to industries in advance processing field like Ayurvedic Medicines • Marketing through cooperative marketing system like Amul • Marketing through Web Site