Rural Development in India through Entrepreneurship: An Overview of the Problems and Challenges

-Dr. S. Vijay Kumar

           The Make in India Strategy adopted by the Prime Minister Shri Narendra Modi aims to facilitate investment, foster innovation, entrepreneurship, enhance skill development in the country. Mahatma Gandhi has rightly pointed out that “India lives in villages”. Villages comprise the core of Indian society and represent the real India. Rural entrepreneurs are those who carry out entrepreneurial activities by establishing industrial and business units in the rural sector of the economy. In other words, establishing industrial and business units in the rural areas refers to rural entrepreneurship. Entrepreneurship can play an important role in rural development. Agriculture continues to be the back bone of rural society. 70 per cent of holdings are held by small and marginal farmers resulting in overcrowding on the agricultural land and diminishing farm produce. This results in migration of farm worker in large numbers to the urban areas. Land being limited and unable to absorb the labour force in agriculture, there is a need to develop rural industries to solve rural unemployment and rural migration to cities. Growth and development of rural economy is an essential pre-condition to the development of the country as a whole. The gap between rural urban disparities should be lessened. The standard of living of the rural people should be increased. Entrepreneurship in rural sector provides an answer to the above problems.

        In the era of globalization, entrepreneurship development in the rural context is a challenge. According to 2011 Census 68.84% people are living in rural areas of India. People in rural areas suffer with unemployment, poor infrastructure facilities which may be solved with the development of the rural entrepreneurs. “Rural Entrepreneurship can be defined as entrepreneurship emerging at village level which can take place in a variety of fields of endeavor such as business, industry, agriculture and acts as a potent factor for economic development”. But, these rural entrepreneurs are suffering with various problems like fear of risk, lack of finance, illiteracy, and competition from the urban entrepreneurs. Rural entrepreneurs increase the standard of living and purchasing power of the people by offering employment opportunity to the people in villages. This paper is an attempt to understand the problems and challenges of rural entrepreneurship in the context of rural development in India and possible suggestions are given to overcome the problems. 

Scope of Rural Entrepreneurship and Rural Industries: Micro and small scale enterprises have existed in rural India since ages in the form of traditional skills. Recently, rural entrepreneurship has emerged as a dynamic concept. There is lot of scope for rural entrepreneurship in SMEs (Small and Medium Enterprises) sector economy which plays a vital role in providing employment and income for the poor and unemployed in rural areas. As the population grows there will be pressure on land and the growth in the agricultural production cannot absorb the ever increasing rural labor force in agricultural employment. This leaves the rural non-farm sector in the form of rural SMEs to absorb those released from agriculture but not absorbed in the urban industries. Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly vibrant and dynamic sector of the Indian economy over the last five decades. MSMEs not only play crucial role in providing large employment opportunities at comparatively lower capital cost than large industries but also help in industrialization of rural & backward areas, thereby, reducing regional imbalances, assuring more equitable distribution of national income and wealth. MSMEs are complementary to large industries as ancillary units and this sector contributes enormously to the socio-economic development of the country. The MSME sector has the potential to spread industrial growth across the country and can be a major partner in the process of inclusive growth. The scope of rural industries is considered basically a question of properly utilizing the unexploited natural and human resources and tapping vast material existing in the countryside. The features of rural industrialization are low investment of capital, labour intensity and use of simple technology by employing local human and material resources. Thus, a judicious mix of local manpower with the local resource is necessary to bring about a viable development in these areas.

MSME Sector accounts for above 37% of GDP; 44% of India's export:

The estimated contribution of MSME sector (including service segment) to GDP during 2010-11, 2011-12 & 2012-13 are 36.69 per cent, 37.97 per cent and 37.54 per cent respectively. Based on the export data maintained by Director General of Commercial Intelligence & Statistics, Ministry of Commerce about the share of MSMEs in India’s total export, for the year 2012-13, 2013-14 and 2014-15, has been estimated as 43.00 per cent, 42.38 per cent and 44.70 per cent respectively.

Rural Entrepreneurship in changing Environment:

The changing global environment raises questions about the ability of traditional, small-scale businesses in rural areas to share the potential benefits offered by the changing environment. The rapid (though declining) population growth, coupled with even faster urbanization, creates increasing demands. In India, urban populations in general grow about twice as fast as the overall total, and by 2020 they may exceed the size of rural populations. Such a major demographic trend challenges the capacities of some traditional small-scale businesses to cope with the increasing demands.

Characteristics of Rural Entrepreneurship: The characteristics of rural entrepreneur are: Risk taking ability, Self-confidence, Decision making ability, Knowledge of growing technology, Economic motivation, Market orientation, firm condition of experience. Ability of co-ordination related activities, Achievement, Motivation, etc. indicators are behaviour of entrepreneurial activities.

Types of Rural Entrepreneurship:

1). Individual Entrepreneurship - It is basically single ownership of the enterprise.

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

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

4). Cooperative Entrepreneurship - It is an autonomous association of persons united voluntarily for a common objective.

Types of Rural Industries: All the village industries come under the following broad categories:

1). Agro-Based Industries: Sugar industries, Jaggery, Oil processing from oil seeds, Pickles, Fruit juice, Spices, Dairy products etc.

 2). Forest Based Industries: Wood products, Bamboo products, Honey, Coir industry, Making eating plates from leaves. 

3). Mineral based industry: Stone crushing, Cement industries, Red oxide making, wall coating powders etc. 

4). Textile Industry: Spinning, Weaving, Colouring and Bleaching. 

5). Engineering and Services: Tractors and Pump set repairs etc. Small and medium sized industries to produce agricultural machinery, equipment for usage in rural areas etc. 

6). Handicrafts: These include making of wooden or bamboo handicrafts that are local to that area, traditional decorative products, toys and all other forms of handicrafts typical to the region.

7). Services: There are a wide range of services including mobile repair, agriculture machinery servicing, etc which are being undertaken under this category. 

Investment – wise classification of Rural Industries (MSME): Almost all rural industries fall under the preview of Micro, Small, and Medium Enterprises. The classification of MSME is as follows:

The Budget 2014-15 has announced a number of proposals for the development and promotion of the MSME sector. The budget has also announced review of definition of MSME to provide for higher capital ceiling. Accordingly, the definition of MSME may be changed by raising the capital limits in plant and machinery to the following levels: 

Manufacturing                                                Present                                           Proposed                                                    

Micro                                                             Rs.25 lakh                                           Rs.50 lakh

Small                                                              Rs.5 crore                                           Rs.10 Crore

Medium                                                         Rs.10 crore                                          Rs.30 Crore

Services

Micro                                                              Rs.10 lakh                                            Rs.20 lakh

Small                                                               Rs.2 Crore                                           Rs. 5 Crore

Medium                                                          Rs.5 Crore                                           Rs.15 Crore

Source: The draft Micro Small & Medium Enterprises Development (Amendment) Bill, 2014

Basic principles of entrepreneur applied to the rural development are:

·       Optimum utilization of local resources in an entrepreneurial venture by rural population - Better distributions of the farm produce results in the rural prosperity.

·     Entrepreneurial occupation rural population to reduce discrimination and providing alternative occupations as against the rural migration.

·   To activate such system to provide manpower, money, material, machinery, management and market to the rural population.

Government Schemes for Rural Entrepreneurship in India:

·         Entrepreneurship Development Institution Scheme

·         Rajiv Gandhi Udyami Mitra Yojana (RGUMY)

·         Performance and Credit Rating Scheme (Implemented through NSIC)

·         Product Development, Design Intervention and Packaging (PRODIP)

·         Khadi Karigar Janashree Bima Yojana for Khadi Artisans

·         Marketing Assistance Scheme

·         Provision of Urban Amenities to Rural Areas (PURA) 

Problems faced by the rural entrepreneurs:

Entrepreneurs are playing very important role in the development of an economy. They face various problems in day to day work. Some of the major problems faced by rural entrepreneurs are classified as under: 

I.                    FINANCIAL PROBLEMS

II.                 MARKETING PROBLEMS

III.               MANAGEMENT PROBLEMS

IV.               HUMAN RESOURCE PROBLEMS

V.                  OTHER PROBLEMS 

I.                    FINANCIAL PROBLEMS: 

a). Lack of funds: Finance is the back bone for any business. Most of the rural entrepreneurs fail to get external funds due to absence of tangible security and credit in the market. The procedure to avail the loan facility is too time-consuming that its delay often disappoints the rural entrepreneurs. They are mainly depending on parents and relatives, popularized person in the particular area for finance. They are not aware of the entrepreneurial supporting financial institution like SIDCO (Small Industrial Development Corporation), SIDBI (Small Scale Industrial Development Bank of India), DIC(District Industrial Center), IDBI(Industrial Development Bank of India), IFCI(Industrial Finance Corporation of India), ICICI (Industrial Credit and Investment Corporation of India) ,etc., These financial institutions are providing finance to entrepreneurs to startup new venture and also modernize the existing business but this institutions rules are regulations are not easy to avail the finance for the business. 

b). Risk bearing Capacity: Generally, rural entrepreneurs have low risk bearing ability due to lack of financial resources and external support. They expect regular income and restrict themselves to invest in their business. 

c). Poor infrastructure facilities: Due to lack of proper and adequate infrastructural facilities, the growth of rural entrepreneurs is not very healthy. Infrastructure facilities like transport (bus, train etc.), communication (telephone; fax, internet facilities etc.), power supply are very poor in the rural areas compare with the cities. They are very much useful for the entrepreneurs to successfully run their business.

 II.                 MARKETING PROBLEMS: 

a). Limited scale and scope of local market opportunities. 

b). Lack of market information due to poor communication facility: The absence of effective communication and access to the right information makes it difficult for rural entrepreneurs to understand market trends and policies followed by the government on industrialization. 

c). Competition: Rural entrepreneurs are facing tough competition from the large scale organizations and urban entrepreneurs. Rural entrepreneurs cannot compete with the urban entrepreneurs due to lack of standardization and branding and quality of the products. The rural producers are not collective in their approach for marketing their products because they are to widely scattered and mostly uneducated. 

d). Middleman: Middlemen exploit rural entrepreneurs. The rural entrepreneurs are heavily dependent on middlemen for marketing of their products who pocket large amount of profit. Storage facilities and poor means of transport are other marketing problems in rural areas. In most of the villages, farmers store the produce in open space, in bags or earthier vessels etc. So these indigenous methods of storage are not capable of protecting the produce from dampness, weevils etc. The agricultural goods are not standardized and graded. 

e). Low quality products Today, consumers are more sensitive regarding the quality of the products. Only some big firms follow the TQM (Total Quality Management) practices in their production. Rural entrepreneur may not produce quality products due to lack of standardized equipments and poor quality of raw materials.

 III.               MANAGEMENT PROBLEMS: 

a). Lack of IT knowledge and Technical Skills: Information technology is not very common in rural areas. Due to low level of technical knowledge and skills, their performance may not be better. Entrepreneurs rely on internal linkages that encourage the flow of goods, services, information and ideas. The intensity of family and personal relationships in rural communities can sometime be helpful but they may also present obstacles to effective business relationships. Business deals may receive less than rigorous objectivity and intercommunity rivalries may reduce the scope for regional cooperation. Decision making process and lines of authority are mostly blurred by local politics in rural areas. 

b). Non availability of skilled labours: In rural areas skilled labours may not be available easily to the entrepreneurs. Generally skilled personnel are willing to work in urban areas due to high salary and other amenities when compared to rural areas. 

c). Legal Formalities: Rural entrepreneurs find it extremely difficult in complying with various legal formalities in obtaining licenses due to illiteracy and ignorance. 

d). Procurement of Raw materials: In rural areas raw materials of the business mainly depend on agriculture. If there are no rains, the business operations are affected. Thus, procurement of raw materials is really a tough task for rural entrepreneur. They may end up with poor quality raw materials, may also face the problem of storage and warehousing. 

e). Lack of training facilities and extension services crate a hurdle for the development of rural entrepreneurship. 

f). Poor Quality of  Products: Another important problem is growth of rural entrepreneurship is the inferior quality of products produced due to lack of availability of standard tools and equipment and poor quality of raw materials. 

IV.               HUMAN RESOURCE PROBLEMS: 

a). Low Skill Level of Workers: Most of the entrepreneurs of rural areas are unable to find workers with high skills. Turnover rates are also high in this case. They have to be provided with on the job training and their training is generally a serious problem for entrepreneur as they are mostly uneducated and they have to be taught in local language which they understand easily. 

b). Negative Attitude: The environment in the family, society and support system is not conducive to encourage rural people to take up entrepreneurship as a career. It may be due to lack of awareness and knowledge of entrepreneurial opportunities. The young and well educated mostly tend to leave. Continuous motivation is needed in case of rural employee which is sometime difficult for an entrepreneur to impart with. 

V.                  OTHER PROBLEMS: 

a). Political and structural problems: Before establishing the business, entrepreneurs clear the government complicated like business license, pollution and clearance etc. Due to low level of education rural entrepreneurs may not complete this process fastly. 

b). Poor knowledge in the maintenance of accounts: Rural entrepreneurs are having poor knowledge in the operation of various business transactions and maintenance of accounts and records. This is because of their illiteracy. 

c). Low Purchasing power: Purchasing power of the rural people is low compared to the urban. 

d). Adverse social, cultural and industrial environment: Social evils, caste systems, fatalism, religious superstitions, particularly in the country side, do not allow development of adventurous spirit. Lack of skill and expertise in labourers, their tendency to migrate to cities and consumer’s habit to buy goods produced by big companies create many problems for new entrepreneurs. 

Challenges faced by Rural Entrepreneurs: Growth of Mall Culture, Poor Assistance, Power Failure, Lack of Technical knowhow, Capacity Utilization,  Infrastructure Sickness.

Opportunities for Rural Entrepreneurs: Government Schemes for Rural Development, Regional Rural Development Centers, Entrepreneurship Development Institute of India, Banking Technology, Rural Innovation Funding (NABARD, Social Rural Entrepreneurship, Free entry into world trade, Improved risk taking ability, Governments of nations withdrawn some restrictions, Technology and inventions spread into the world, Encouragement to innovations and inventions, Promotion of healthy completions among nations, Consideration increase in government assistance for international trade, The establishment of other national and international institutes to support business among the nations of the world, Benefits of specialization, Social and cultural development. 

Suggestions: 

Labour Intensive Techniques: As there is disguised unemployment in our agriculture sector, labour intensive techniques should be adopted in rural industrial units. 

Educate the Rural Entrepreneurs: Government and NGOs offered various schemes and opportunity to the rural entrepreneurs. But, they are unaware of these schemes and opportunities due to their illiteracy. So they should to be educated by conducting workshops and seminars related to their business. 

Offer finance with low rate of interest: Financial institutions like ICICI, SIDBI, IDBI, IFCI, and SFC should provide finance to rural entrepreneurs with low rate of interest and limited collateral security with liberal terms and conditions. 

Government Role: Government should take steps to provide infrastructure, warehousing facilities, offer assistance to marketing and to export the goods of rural entrepreneurs to foreign countries. 

Exploitation of Village resources: For example, where ever there is scope for wind and solar energy, can be fully exploited for rural electrification.

Ancillary units: Several ancillary units should be established in rural areas which will lead to better productivity of many engineering industries. 

Micro credit schemes: Provisions should be made for micro credit system like SHGs to the rural entrepreneurs who will boost up the economic development and employment generation of the rural poor. 

Past experiences and other observations should be considered to develop rural entrepreneurship.  

Market information of different products and innovative technology should be publicly announced by the government in order to get its acceptance among the rural entrepreneurs. 

Infrastructure facilities like land, power, raw materials and finance should be provided to the rural entrepreneurs at concessional rates. 

Credit Information of the rural entrepreneurs has to be developed so as to enable them to get sufficient amount of loan from the banks at reasonable rate of interest. 

SWOT Analysis: Strengths, Weaknesses, Opportunities, and Threats of small businessmen have to be identified and properly trained to motivate them to become entrepreneurs. 

Innovators club should be established in villages to support the large mass of youth who are interested in taking business as a career. 

Marketing management skills should be improved among the rural entrepreneurs to face the problems of entrepreneurship. 

Management training is to be imparted to create awareness of innovative spirit among the rural entrepreneurs. 

Awards should be given to those entrepreneurs who demonstrate extraordinary success. 

Entrepreneurship development cell should be established at all the villages level to provide guidance and counseling to motivate the rural entrepreneurs regarding the use of modern technology. 

Separate financial fund for rural entrepreneurs should be provided by the Government. At the same time they should be provided with adequate and timely financial assistance from all the financial institutions and banks. 

Special training programmes for rural entrepreneurs in particular and in general for rural population should be arranged by the Government to improve their knowledge and vocational skills. 

Rural youth need to be motivated to take up entrepreneurship as a career, with training and sustaining support systems providing all necessary assistance.

Finance for Modernization: Sufficient finance must be given to modernize their outdated technology, tools and implements in order to enable them to compete with the large scale industries. 

Rural entrepreneur should more competitive and efficient in the local & international market. 

Successful rural entrepreneurs should show path for other rural entrepreneurs. 

Several schemes and plans of government should be strongly executed at different levels for the encouragement of rural entrepreneurs. 

Interest free consumption credit should be provided by the Government, Banks and other financial institutions to encourage buying the products produced by rural entrepreneurs. 

Agriculture diversification by exploring the opportunities by farming completely a new range of grains, fruits or vegetables.

Establishing agro food processing units or related units like wine production, juice production and many others.

Non-farm product business establishment by promoting local rural artisan work.

OPS (Opportunities, Problem identification& Solution) Approach: This approach helps an entrepreneur especially neo-rural entrepreneur to explore opportunities include the scanning of the environment to explore the possibilities to start the new venture or to support the already established business in more professional manner. Identifying the exact nature of the problem (External to the organization or internal to the organization? If problem of the business is related with government policy it is external and if it is internal it may be related with strategic issue or operational issue or related with functional issues to set up an industrial unit), after identification of the problem it is easier to utilize the opportunities available in the market to explore further.

Encouraging the skilled and professional people who have left the rural area to come back. 

NRIs and wealthy people of their respective villages should establish/assist rural industries. 

There should be efficient regulated market for the marketing of rural products. 

Grading, standardization should be promoted and promotional activities should be enhanced for the benefit of rural industries. 

To help to develop flexible manufacturing networks of co-operatives, micro and other manufacturing businesses. 

To develop and produce a particular product that none of the firms could manufacture alone i.e. there should be link between them in the manufacture of that product. 

To develop the ways and means by which diversify the product lines, markets and expand distribution channel. 

To promote co-operation between small firms in the network, thus promoting their competitive efficiency. 

To provide different services in the areas of finance, marketing, research and development. 

To provide common services of daily matters in production and administration in order to reduce transaction costs. 

Conclusion: Rural entrepreneurship plays a vital role in the economic development of India, particularly in the rural economy. It helps in generating employment opportunities in the rural areas with low capital, raising the real income of the people, contributing to the development of agriculture by reducing disguised unemployment, reducing poverty, migration, economic disparity, unemployment. Government should go for appraisal of rural entrepreneurship development schemes and programmes in order to uplift rural areas. Rural entrepreneurship finds it difficult to take off is due to lack of capital accumulation, risk taking and innovation. The rural development programs should combine infrastructure development, education, health services, investment in agriculture and the promotion of rural non-farm activities in which women and rural population can engage themselves. Rural entrepreneurship is the way of converting developing country into developed nation. Promotion of rural entrepreneurship is extremely important in the context of producing gainful employment and reducing the widening disparities between the rural and urban. Monitoring rural development programmes by supplying right information at the right time, providing timely and adequate credit and continuous motivation of bankers, Panchayat union leaders and voluntary service organizations will lead to the development of rural entrepreneurship.