Description
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.
1.INTRODUCTION
Entrepreneurship in India plays a catalytic
and important role in the economic
development. It has emerged as a dynamic
and vibrant sector of the economy. It is a
well recognized fact that a vibrant
entrepreneurship holds the key to economic
prosperity in an economy characterized by
abundant labour supply, unemployment and
SMALL SCALE ENTREPRENEURSHIP IN INDIA
K. Lavanya Latha
a
, C. Madhavaiah*
b
and B.E.V.V.N. Murthy
a
a
Department of Management Studies, Sri Venkateswara University,
Tirupati – 517 502, Andhra Pradesh, India.
b
Department of Management Studies, Siddharth Institute of Engineering & Technology Siddharth
Nagar, Narayanavanam Road, PUTTUR – 517 583, Andhra Pradesh, India.
(Received 12 November 2007; accepted 16 May 2008)
Abstract
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.
Keywords: Entrepreneurship, Entrepreneur, Small Scale Industry, India, Economic Power, and
Development
*
Corresponding author: [email protected]
Ser bi an
J our nal
of
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Serbian Journal of Management 3 (2) (2008) 171 - 187
www.sjm.tf.bor.ac.yu
underemployment, capital scarcity, growing
modern large industrial sector giving scope
for ancillarisation and so on.
Entrepreneurship has grown phenomenally
during the past five decades besides playing
a vital role in the fulfilling of our socio-
economic objectives.
Entrepreneurship has developed in a
systematic way since the beginning of
Industrial Revolution in Europe. The
development of entrepreneurship is essential
for rapid economic development and has
engaged the attention of economists,
sociologists, and psychologists to study the
phenomenon in the developed and
developing countries in recent years.
Consequently, the phenomenon of
entrepreneurship has been viewed from these
three dimensions. The research studies in the
field of entrepreneurship by an individual, or
a group have contributed largely to the
formation of various theoretical framework
for analyzing entrepreneurial behaviour,
however, these studies have been influenced
by the particular discipline to which the
individual or the group belongs. There has
not been any monolithic approach towards
theory-building in the field of
entrepreneurial development. Various
scholars have highlighted multiple
approaches to the study of entrepreneurial
behaviour and entrepreneurship. A scholar
of economics tends to emphasize the
economic aspects of entrepreneurship, a
sociologist analyses in terms of socio-
cultural environment, values and family
tradition, whereas a psychologist highlights
personality factor of entrepreneurship. No
single factor therefore works as the only
determining variable for the phenomenon of
entrepreneurship. However, the theoreticians
have made and have been making some
efforts to bring out some single factor as the
dominant one to analyse entrepreneurship.
In the light of above, the present study
attempts to get insights to review, in brief,
the evolution of the concept of
entrepreneurship, the definition of small
scale enterprise and also to study
development of the small scale
entrepreneurship in India. The study is based
on the secondary data made available by the
offices –Director of Industries and District
Industries Centres, various publications of
Government of India such as Census of
Small Scale Industries, Economic Survey,
Report on Small Enterprises (Abid Hussain
Committee) and Bulletins of Reserve Bank
of India.
2. EVOLUTION OF THE CONCEPT OF
ENTREPRENEURSHIP
The concept of “entrepreneur” and the
“entrepreneurship” have gone through
various stages before they came to signify
the content being put into them now. Various
thinkers have defined the term in a variety of
ways. In order to understand the
phenomenon of entrepreneurship as whole, it
is worthwhile to analyse these definitions
and views independently.
The word “entrepreneur” is derived from
the French verb “entreprendre”, means “to
undertake”. The word entrepreneur has been
in use since the sixteenth century. Kilby has
linked the entrepreneur with a rather large
and very important animal called
“Heffalump” hunted by many individuals
and have variously described him, but wide
disagreements still exist among them on his
particularities (Peter Kilbly, 1971). The
French men who organized and led military
expeditions were referred to as
“entrepreneurs” (Peterson, 1962).
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K. Lavanya Latha / SJM 3 (2) (2008) 171 - 187
Around 1700 A.D., the term was used for
architects and contractors of public works.
Quesnay regarded the rich farmer as an
“entrepreneur” who manages and makes his
business profitable by his intelligence, skill
and wealth (Desai, 1991).
In the 18th century, the old Oxford
Dictionary of 1897 defined entrepreneur
simply as “the director or manager of public
musical institution, i.e., one who ‘gets up’
entertainments, especially musical
performance” (Tandon, 1975). The
dictionary in its supplement of 1933
modified its definition and recognized that
the word has a place in business; it defines
entrepreneur as one who undertakes an
enterprise (Tandon, 1975), especially a
contractor acting as an intermediary between
capital and labour. Undertaking an
enterprise is entrepreneurship, and one who
undertakes it is one who combines capital
and labour for the purpose of production is
an entrepreneur.
The concept of entrepreneur has many
facets and the term has been used in a
different context with a different perspective.
Economists have recognized the
entrepreneur as essential agent in generating
investment opportunities. Sociologists
analyse him as sensitive energizer in
modernization of societies. The
psychologists examine him as an
“entrepreneurial man”, his motivations and
aspirations in order to decipher his character
which is conducive to economic
development. Political scientists regard him
as the fair child of political system which
provides effective assistance for his
emergence (Shravanvel, 1987).
In economic theories, the concept of
entrepreneur has been coined in terms of
functions. Richard Cantillon, an Irishman
living in France, was the first person to
introduce the term ‘entrepreneur’, in the
early 18th Century. He defined entrepreneur
as an agent who buys factors of production at
certain prices in order to combine them into
a product with a view to selling it at
uncertain prices in future (Kilbly, 1971).
Cantillon emphasized the function of ‘risk-
taking’ and ‘uncertainly bearing’. He
illustrates the concept by giving examples of
farmers, manufacturers and traders. The risk
and uncertainty is inherent in these activities.
Since Cantillon has stressed one aspect of the
concept, he could not enjoy economic
popularity for a long time.
Frank H. Knight defined the entrepreneur,
more or less, similar to those of Cantillon.
Uncertainty is defined as a risk which cannot
be insured against and is incalculable.
According to him, entrepreneur is an
economic functionary who undertakes such
responsibility of uncertainty which by its
very nature cannot be insured, or capitalized
or salaried. He also guarantees certain sums
to other means in return for assignments
made to them. According to him, the supply
of entrepreneurship involves three factors:
ability, willingness, and power to extend
such guarantee (Frank, 1957).
Jean Baptiste Say, an aristocratic
industrialist, and a French economist,
developed the concept of entrepreneur a little
further. He emphasized the functions of co-
ordination, organization and supervision. In
more simple words, an entrepreneur is one,
who combines the land of the one, labour of
another, and the capital of yet another and
thus, produces a product. By selling the
produce in the market he/she pays interest on
capital, rent on land, wages to labours and
what remains is his/her profit (Say, 1915).
According to J.B. Say, the entrepreneur is an
organizer and speculator of a business
enterprise, who combines economic
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K. Lavanya Latha / SJM 3 (2) (2008) 171 - 187
resources out of an area of lower into an area
of higher productivity and greater yield. He
has clearly distinguished between the role of
a capitalist as a financier and of an
entrepreneur as an organizer of a business
activity.
Say, Mill (1975) and Marshall (1961)
emphasized the role of entrepreneur as an
organizer and recognized the entrepreneur as
the central figure in a business enterprise,
however according to the critics, they failed
to see full significance of the role of an
entrepreneur of which combining factors of
production is only one aspect.
The concept of entrepreneur propagated
by all the above thinkers was in the context
of static conditions, and was not related to
the process of economic development.
Joseph Alois Schumpeter, for the first
time, in 1934, assigned a crucial role of
‘innovation’ to the entrepreneur in his
‘magnum opuses, the theory of ‘economic
development’ (1934). Schumpeter
considered economic development as
discrete dynamic change. Such
discontinuous dynamic changes are brought
about by entrepreneur by instituting new
combinations of the factors of production,
i.e., ‘innovation’ (Schumpeter, 1939).
Innovation may take place in the
following forms:
• The introduction of a new product in
the market.
• The instituting of a new production
technology which is not yet tested by
experience in the branch of manufacturing
concerned.
• The opening of new market into
which the specific product has not been
previously introduced.
• The discovery of a new source of
supply of raw material.
• The carrying out of the new form of
organization of any industry like the creation
of monopoly position or the breaking up of it
(Bisht, 1989).
Schumpeter further distinguished
between invention and innovation. An
inventor discover a new method and new
materials, and an innovator utilizes
inventions and discoveries in order to make
new combinations and thus produces newer
and better goods which yield him profit and
satisfaction. The inventor produces ideas
and the entrepreneur implements them. He
considered innovation as creative response to
a situation.
Schumpeter’s concept of ‘entrepreneur’ is
very wide, in the sense, he includes not only
independent businessmen but also to some
extent, dependent employees of a firm like
managers, directors and so on, provided they
do innovative work. On the other side, the
definition is narrow, because it does not
include industrialists and employees who
operate an established concern. According
to him no one is permanently an entrepreneur
so long as he gives creative and innovative
response to market situation. He, while
emphasizing the innovative function of an
entrepreneur, ignored his risk-bearing
function which is equally important.
Schumpeter wrote his theory of economic
development in the context of Industrial
Revolution of presently advanced countries
where some of the pre-requisites of growth
already existed. Inevitably, his theoretical
explanation corresponds to a particular social
and economic order that existed there during
that specific period. Innovation was
concentrated in a few fields in which big
entrepreneurs rose as the spearheads of
growth. Big innovations yielded a surplus
for reinvestment and in this way the
entrepreneur could invade the various
economic fields with spectacular success
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(Pritam, 1966).
The applicability of the Schumpeterian
‘innovative’ concept of entrepreneur to
underdeveloped economies is conditioned on
the above grounds. Things are likely to be
different in underdeveloped or developing
countries. In such situations, entrepreneurs
have to face numerous problems like
imperfect market; shortages of capital, of
skilled labour and of technical know how.
Against these odds they are required to
develop their industries. Naturally they
cannot reach the scale of operation
visualized by Schumpeter. But it does not
prove that entrepreneur in underdeveloped or
developing countries requires any less ability
and ingenuity. The business leader in
underdeveloped countries can also be called
an entrepreneur.
Peter Drucker defines an ‘entrepreneur’ as
one who always searches for change,
responds to it, and exploits it as an
opportunity, entrepreneurs innovate. Drucker
has aptly observed that ‘innovation’ is the
specific tool of entrepreneurs, the means by
which they exploit changes as an opportunity
for a different business or a different service.
It is capable of being presented as a
discipline, capable of being learned, capable
of being practised. Entrepreneurs need to
search purposefully for the source of
innovation, the changes and their symptoms
that indicate opportunities for successful
innovation. And they need to know and to
apply the principle of successful innovation
(Desai, 1991).
According to Drucker, three conditions
have to be fulfilled:
1. Innovation is a work. It requires
knowledge. It often requires great ingenuity.
It makes great demands on diligence,
persistence and commitment.
2. To succeed, innovation must build on
its own strength.
3. Innovation has to be close to the
market, focused on the market, indeed
market-driven.
According to Francis A. Walker, the true
entrepreneur is one who is endowed with
more than average capacities in the task of
organizing and coordinating the various
other factors of production. He should be a
pioneer and captain of an industry. The
supply of such entrepreneurship is however
quite limited and enterprise in general
consists of several grades of organizational
skill and capability. The more efficient
entrepreneurs receive a surplus reward over
and above the managerial wages and this
sum constitutes trade profit ascribed to
superior talent (Shravanvel, 1987).
The above definitions specified by
different thinkers, stress only selected
aspects of entrepreneurship. In modern
times, an attempt is made to generate a
comprehensive definition which tries to
highlight all facets and aspects of
entrepreneurial activity. These
multidimensional aspects may be stated as
follows to frame synthesized concept of
entrepreneur. In an enterprise, land, labour
and capital are separately owned respectively
by landowners, labours and financiers and
are divorced from one another. An
entrepreneur is an organizer, his organizing
ability brings them together in proper
proportions at reasonable rates and harnesses
them to work in production, attempts to
produce a socially valuable product, so as to
yield the best returns. As an organizer, he
also guarantees the specific sums to the
landowners, labours and financiers in return
for assignments made to them. An
entrepreneur bears the risk which is inherent
in any business activity. An entrepreneur
starts the enterprise, organizes it, supervises
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K. Lavanya Latha / SJM 3 (2) (2008) 171 - 187
it and engineers long-run plan of the
enterprise. He is a specially motivated and
talented person, who implements new ideas,
visualizes opportunities for introducing new
products, techniques, and production
process, new form of organization, discovers
new market and new source of supply of raw
materials. That is how, he innovates, and in
this way he takes upon himself the entire
responsibility of the enterprise.
According to B.C.Tandon (1975),
entrepreneurship means the composite
function of creating something new,
organizing and co-ordinating and
undertaking risk and handling economic
uncertainty. In this context, an entrepreneur
is the person who tries to create something
new, organizes production and undertakes
risk and handles economic uncertainty
involved in enterprise.
In the same context, the definition of
Higgins seems to be worth quoting,
“Entrepreneurship” is meant the function of
seeing investment and production
opportunities, organizing an enterprise to
undertake a new production process, raising
capital, hiring labour, arranging for a supply
of raw materials and finding site, and
combining these factors of production into a
going concern; introducing new techniques
and commodities, discovering new sources
of natural resources; and selecting top
managers for day-to-day operations of the
enterprise (Higgins, 1961).
According to William Diamond,
“Entrepreneurship is equivalent to
‘enterprise’ which ‘involves the willingness
to assume risks in undertaking an economic
activity, particularly a new one. It may
involve an innovation but not necessarily so.
It always involves risk-taking, decision-
making, although neither risk nor decision
making may be of great significance (1957).
Entrepreneurship refers to a process of
action; an entrepreneur (person) undertakes
to establish the enterprise. The term
‘entrepreneur’ has been defined as one who
detects and evaluates a new situation in his
environment and directs the making of such
adjustments in the economic systems as he
deems necessary. He conceives of an
industrial enterprise for the purpose of,
displays considerable initiative, goal and
determination in bringing his project to
fruition, and in this process, performs one or
more of the following:
• Perceives opportunities for profitable
investments;
• Explores the prospects of starting
such a manufacturing enterprise;
• Obtains necessary industrial licences;
• Arranges initial capital;
• Provides personal guarantees to the
financial institutions;
• Promises to meet the shortfalls in the
capital; and
• Supplied technical know-how
(Danhof, 1949).
The entrepreneurs’ role is to furnish
technical skills, commercial knowledge and
powers of administration, to assume
responsibilities and provide against
contingencies, to share and direct production
and organize and control the industrial
machine (Walker, 1986). Entrepreneurs are
people who have the ability to see and
evaluate business opportunities to gather the
necessary resources to take advantage of
them and to initiate appropriate action to
ensure success (Meredith, Nelson and Neck,
1982).
Psychological stress is a natural
concomitance of any creative activity. It is
much more so if the activity relates to an
intensely competitive area like business.
Entrepreneurs, being creative individuals,
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K. Lavanya Latha / SJM 3 (2) (2008) 171 - 187
often experience such stress at various stages
of development of their enterprises (Pareek
and Rao, 1995).
Marbinson’s entrepreneur is not an
innovator but an organization builder who
must be able to harness the new ideas of
different innovators to the rest of the
organization (Frederick, 1956).
In modern context, the term
‘entrepreneur’ has been used in a broader
perspective. According to Vasant Desai
(2004), the entrepreneur brings in overall
change through innovation for the maximum
social good. Further, India which itself is an
underdeveloped country aims at
decentralized industrial structure to mitigate
the regional imbalances in levels of
economic development, small scale
entrepreneurship in such industrial structure
plays an important role to achieve balanced
regional development (Khanka, 1994) .
Lastly, the establishment of
Entrepreneurship Development Institute,
various developmental policies and alike by
the Indian Government during the last five
decades bear a good testimony to her strong
realization about the premium role of
entrepreneurship played in economic
development.
3. SMALL SCALE ENTERPRISE
To appreciate small scale
entrepreneurship in India, a basic
understanding of the definition and scope of
the terminology “small enterprise” is very
necessary. The definition of a small
enterprise varies across countries, industries,
agencies and authors. The terminology
“small enterprise” itself is used by different
countries by different nomenclatures such as
small business, small firm and small
industries and so on. Throughout this study
the terms small enterprise, small firm and
small business are used interchangeably.
Vepa (1988) has listed the various
terminologies used in some countries (see
Table 1).
Atkins and Lowe (1997) noted that as
many as 40 different definitions of small
firms have been reported in the literature,
and generally there appears to be very little
consistency in criteria used to define small
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K. Lavanya Latha / SJM 3 (2) (2008) 171 - 187
Table 1. Terminologies and scope of Small Industry in select countries
enterprises. The criteria are many, such as
number of employees, annual sales revenue,
value of fixed assets/plant and machinery
and the management structure.
In India, the small industry is defined in
terms of investment ceiling. Also the small
industry sector enjoys a special reservation
policy in terms of items of manufacture. The
investment limit ceiling was revised by the
central government from time to time,
depending on the industrial and economic
development and needs of entrepreneurs.
The evolution of investment limits of small
industries in India is shown in Table 2.
Initially, there was an additional condition
limiting number of persons employed, the
same was deleted in 1960. Further, the
investment ceiling was linked to plant and
machinery only, excluding investment in
other fixed assets i.e., land and building. The
reason was to define small industry with
respect to such investments mainly in
productive assets.
The investment limit was raised to Rs. 30
million based on the recommendations of the
Report of the Expert Committee on Small
Enterprises, with Dr. Abid Hossain as
Chairman. The report, submitted to the
Central Government in July 1997,
recommended that the definition of small
scale industries be broadened to small scale
enterprises and allowing incentives, credit
facilities, and promotional facilities to flow
to all small enterprises. On line with this, it
was recommended that the investment limit
of small scale enterprise be raised to Rs. 30
million. But later, it was felt that this raise in
investment limit up to Rs. 30 million did not
truly result in accelerated investments in
small enterprises. Large majority of small
enterprises still belong to the lower
investments up to Rs. 1 million. There was
also an apprehension that with the increased
investment limit up to Rs. 30 million, some
of the medium scale may roll back to small
scale thus bringing in unhealthy competition.
Therefore, the investment ceiling was, for
the first time in 1999, reduced from Rs. 30
million to Rs. 10 million.
It was in 1977, the Central Government
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K. Lavanya Latha / SJM 3 (2) (2008) 171 - 187
Table 2. Evolution of Investment Limit for Small Industries in India
introduced a new category namely “Tiny
Sector Industries” with the small scale
industry category, particularly to provide
promotional measures and incentives to such
of the small industries having much lower
investment limits. The present investment
limit for tiny sector industries is Rs. 2.5
million in plant and machinery. For the
purpose of this study, the tiny sector is also
considered as part of small enterprises.
In United States, the Small Business
Administration, established in 1953,
provided financial, technical and
management assistance to help Americans to
start, run and grow their businesses. The size
standards of Small Business Administration
define whether a business entity is small, and
thus eligible for government assistance
reserved for small business concerns. Small
Business Administration establishes size
standards considering economic
characteristics, comprising the structure of
industry, including degree of competition,
average firm size, start-up costs and entry
barrier and distribution of firm by size. It
also considers technological change,
competition from other industries, growth
trends, and historical activity within an
industry. As reported in homepage of Small
Business Administration, America’s 25
million small businesses employ more than
50 percent of the private workforce, generate
more than half of the nation’s gross domestic
product, and are the principal source of new
jobs in the US economy.
Bolton Committee Report in UK indicates
that a small firm is defined by the number of
persons employed, (less than 200 for
manufacturing, less than 25 for construction
and less than 5 vehicles for transport) and by
turnover for retail trade (less than turnover
£50,000) and wholesale trade (less than
turnover of £200,000).
According to European Union
(Blackburn, 2001) approach the businesses
are classified as micro firms (less than 10
people); small firms (10–49 employees); and
medium–sized firms (50–249 employees).
Frequently, researchers combine small and
medium firms into a single category i.e.,
small and medium-size enterprises. Those
with 250 or more employees are classified as
the large firms.
Besides the statistical definition of small
enterprises in different countries, Atkins and
Lowe argue that the structure and decision
making process of an organization should be
the primary indicator of a small firm. They
explain that statistical definition of smallness
such as number of employees or annual
receipts may omit significant dimensions of
small firms. They refer to the involvement of
the business owners in the strategic planning,
forecasting, and performance comparison of
small firms. Further, Resnik (1988) argues
that one of the defining criteria of small
firms is the involvement of the owner-
manager in setting the business priorities,
objectives, and standards. This argument
suggests that a firm may be classified as
small, based upon the role of the owner-
managers and the extent to which their direct
participation in the management of the
business.
Alternatively, the small enterprises can be
defined using qualitative approach. Bolton
Committee Report in UK provided one of the
best-known approaches. This was in the form
of an ideal type combining three elements.
First, in economic terms, a small firm is
one that has a relatively small share of
market. Secondly, an essential characteristic
of a small firm is that its owners or part-
owners manage it in a personalized way, and
not through the medium of formalized
management structure. Thirdly, it is also
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K. Lavanya Latha / SJM 3 (2) (2008) 171 - 187
independent in the sense that it does not form
part of a larger enterprise and that the owner-
managers should be free from outside control
in taking their principal decisions (Thomson,
2000)
Haksever (1996) notes that “in case of
small firms, the management is independent;
usually the owner is one of the managers and
reports to no one”. The summary of
Haksever incorporates the guidelines
established by the US Small Business
Administration, (Guide to SBA: Definitions
of Small Business, 1996) and arguments of
Atkins and Lowe. Haksever defines a small
business as one with fewer than 500
employees and exemplifying the following
characteristics:
1. Management is independent; usually
the manager is also owner.
2. Capital is supplied and ownership is
held by an individual or a small group.
3. The area of operations is mainly
local; workers and owners tend to be in one
home community, although markets need not
be.
4. The business is small, compared to
the biggest units in the field.
Nolan used the above definition in his
doctoral research on small business
performance. In Indian context, Chachadi
(1988) also adopted similar definition in his
doctoral research work on ‘Decision Making
in Small Industry’, as it incorporates
managerial aspects like ownership and
control. The definition of Government of
India only refers to ceiling on investment in
plant and machinery, which relates to
economic aspects, because financial and
capital resources of small enterprises are not
so abundant, as in developed countries. The
definition of Haksever has added
significance to the present study, as it does
not ignore local area of operation and local
owners and employees.
In an attempt to formulate qualitative
definitions of small firms, a key assumption
made, was that small firms were
fundamentally different from large firms. In
one of the classics of small business
theorizing (Penrose, 1959) this assumption
was summed up in the analogy that small and
large firms were fundamentally different
from each other as caterpillars are from
butterflies. It was noted that even if one
metamorphosis into other, it would not be
simply larger version of the other, and in case
of small firms, the chance of metamorphosis
is also not certain. Many small firms may
never grow beyond a small size, as most of
the ‘caterpillars’ may never become
butterflies (Blackburn, 2001).
Regarding size, Burrows and Curran
(1989) argue as “ Size, whether measured in
terms of number of employees, turnover,
market share whatever, is not sufficiently
robust criterion to allow ‘ small firms ’ to be
isolated and analyzed as having an economic
and social specificity ”. These authors
continue their arguments that smallness per
se is not technically a necessary
characteristic of an organization but a
contingent one. Smallness has the same
status as other characteristics such as legal
form of organization, type of economic
activity engaged, the technology employed,
region or local economy, the age, gender,
ethnicity and educational level of the owners
or workers of the firm etc.
Phansalkar (1996), a consultant to small
industries in India, argues that there is no
firm, indisputable and yet defensible
criterion for delimiting terms such as small
or large industry. What in India considered
being a giant, say automobile manufacturing
companies, may be possibly small in the eyes
of a global player in auto industry. He
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further states that, in Indian situation, basis
of categorization on sales turnover, or
investment in fixed assets could also pose
problems, because there are instances of one-
man-show in an oil mill, where the sales
turnover could be over Rs.1500 lakhs (150
Million). Small enterprises may employ a
few people, and the management levels may
be of simple structure. On the other hand,
small enterprises having low capital
investment, according to the statistical
definition, could be involved in complex
business. In his opinion, the only possible
and defensible ground for categorization of
small, medium and large industry in Indian
context is by differentiating their
management problems. This means that
amount of complexity involved in
management of enterprises becomes a key
parameter for differentiating enterprises as
small or large. Parameters such as sales
turnover, investment in fixed assets, or
number of employees are simply surrogates
for complexity. Therefore, the paradox that
by definition, the small enterprises
management ought to be simpler, but seldom
it is based on the above arguments on
defining the small enterprises, it would be
unrealistic to demand uniformity of approach
in small business research. While the
European Union definition of micro and
small firms is widely used, many researchers
used the combination of definitions framed
by Small Business Administration (SBA
office of Advocacy, 1997), Atkins and Lowe
(1997) and Hoksever (1996).
4. OVERVIEW OF SMALL SCALE
ENTREPRENEURSHIP IN INDIA
Entrepreneurship is regarded as one
closely associated with economic history of
India. The evolution of the Indian
entrepreneurship can be traced back to even
as early as Rigveda, when metal handicrafts
existed in the society (Rao, 1969). This
would bring the point home that handicrafts
entrepreneurship in India was as old as the
human civilization itself and was nurtured by
the craftsmen as a part of their duty towards
the society. Before India came into contact
with the west, people were organized in a
particular type of economic and social
system of the village community. The Indian
towns were mostly religious and the
elaborated caste based diversion of workers
consisted of farmers, artisans and religious
priests (the Brahmins). The majority of the
artisans were treated as village servants.
Such compact system of village community,
effectively protecting village artisans from
the onslaughts of external competition, was
one of the important contributing factors to
the absence of localization of industry in
ancient India (Deshpande, 1984) . Organized
industrial activity was observable among the
Indian artisans in a few recognizable
products in the cities of Banaras, Allahabad,
Gaya, Puri and Mirzapur which were
established on their river basins as a means
of transportation facilities. Bengal enjoyed
worldwide celebrity for corah, Lucknow for
chintzes, Ahmedabad for dupattas and
dhotis, Nagpur for silk-bordered clothes,
Kashmir for shawls and Banaras for metal
wares. Thus till the earlier years of the
eighteenth century, India enjoyed the
prestigious status of the queen of the
International trade with the help of its
handicrafts.
Unfortunately, so much prestigious Indian
handicrafts industry, which was basically a
cottage and small sector, declined at the end
of the eighteenth century for various reasons
like disappearance of the Indian Royal courts
and entry of British people with the
181
K. Lavanya Latha / SJM 3 (2) (2008) 171 - 187
competition of machine-made goods
(Gadgil, 1959). The emergence of
manufacturing entrepreneurship can be
noticed in the second half of the nineteenth
century. Ranchodlal chotalal, a Nagar
Brahman, was the first Indian to think of
setting up the textile manufacturing on the
modern factory lines in 1847, but failed. In
his second attempt, he succeeded in setting
up a textile mill in 1861 in Ahmedabad
(Spodak, 1965). But before this, the first
cotton textile–manufacturing unit was
already set up by a Parsi, Cowasjee
Nanabhoy Davar in Bombay in 1854
followed by Nawrosjee Wadia, who opened
his textile mill in Bombay in 1880. Probably
the major Indian contribution in the
Nineteenth century came in the field of
banking, where every important company
owned its existence, in part, to the enterprise
and capital of Indians (Rungta, 1970). A few
beginnings were made by Indians in heavy
industries–steel, engineering, electric power
and shipping (Lamb, 1955) in the early part
of the twentieth country. The most
spectacular of these ventures was by
Jamshedjee Tata, a Parsi, who was
responsible for India’s first viable steel
enterprise in Jamshedpur in 1911. The
Swadeshi Campaign i.e., emphasis on
indigenous goods, provided, indeed a proper
seed bed for inculcating and developing
nationalism in the country. It was the
influence of Swadeshi that Jamshedji Tata
even named his first mill as “Swadeshi Mill”.
The spirit of indigenousness strengthened its
roots so much in the country that the Krishna
Mills in its advertisement of Tribune of April
13 made the following appeal “Our concern
is financed by native capital and is under
native management throughout (Joshi and
Ram, 1975). The second wave of
entrepreneurship growth in India began after
the First World War. The government gave
mild protection and some encouragement to
the select forms of enterprise, especially
sugar and cement. By 1939, there were
11,114 companies (not all of them industrial
concerns) which were mostly functioning in
and around Bombay, Calcutta and
Ahmedabad with a capital investment of Rs.
290 crores. In 1945, the number of
companies had gone up to 14,859 and the
capital investment had risen to Rs. 389 crores
(Agrawala & Singh, 1979). The
development that took place did not bring
about either a degree of regional balance or
major structural changes in the Indian
economy. The entrepreneurs who
contributed to this development were mostly
drawn from the well known business houses
and families such as Birla, Tata, Dalmia –
Jain, Bangur and Thapar(Hozari, 1965). In
the post 1990, the new class of entrepreneurs
like Dhirubhai Ambany of Reliance,
Brijmohanlal of Hero Honda, Anji Reddy of
Dr.Reddy Lab, Narayana Murthy of Infosys,
Azim Premji of Wipro, Ramalingaraju of
Satyam Computers and many more have
taken the country as one among the most
preferred countries for investment in the
world. There are about 2542 listed
companies in the Bombay Stock Exchange.
The market capitalization of the traded
companies on Bombay Stock Exchange is
Rs. 22, 51,012 crores (The Economic Times,
2005).
India relies mostly on the performance of
agricultural and industrial sectors for their
economic development. The agricultural
sector has a vast employment potential but is
unable to absorb the fast multiplying
population. This situation calls for
developing alternatives to meet the needs of
ever growing population. So our planners
and economists focused attention on
182
K. Lavanya Latha / SJM 3 (2) (2008) 171 - 187
accelerating the economic growth through
rapid entrepreneurship in the present era. In
fact the small scale entrepreneurship has
been assigned high priority in the
development of economy of the country.
Entrepreneurs contributed relatively more in
a society, which had free economy and
provided high prestige and security to
entrepreneurs than the one, which had
relatively more regulated economy and
provided lesser prestige and security.
When India attained Independence, the
new government began to realize the need
for accelerating industrial development and a
general protectionist system was introduced.
Consequently, the various Industrial Policies
provided major guidelines for industrial
development and at the same time the
government started to provide various
incentives and concessions in the form of
capitalist, technical know – how, markets
and land to the potential entrepreneurs to
establish industries in the industrially
potential areas to remove the regional
imbalances in development. The Five Year
Plans provided the necessary frame work
through their specific programme for
economic development of the nation. Several
institutions like Small Industries
Development Organization, National Small
Industries Corporation, Small Industries
Service Institutes at the Central Government
and Directorate of Industries, Financial
Corporations, Small Scale Industries Board,
District Industries Centres were also
established by the State Government to
facilitate the new entrepreneurs in setting up
their enterprises. Expectedly, the Small
Scale Units emerged very rapidly in India
witnessing a tremendous increase in their
number from 121,619 in 1966 to 190,727 in
1970 registering an increase of 17,000 units
per year during the period under reference.
The family entrepreneurship units like Tatas,
Birlas, Mafatlals, Dalmias, Kirloskars,
Ambanies, Brijmohanlals, Narayana Murthy,
Azim Premji and others grew beyond the
normally expected size and also established
new frontiers in business in this period.
District Industries Centres at the district level
functioned as nodal centres for development
of small scale entrepreneurship in rural and
semi urban areas. District Industries Centres
operated as ‘single window’ agency through
which all assistance needed for small scale
entrepreneurship were streamlined. List of
products reserved for small industries
increased dramatically from 180 to 540 and
later to 812. The Third Census of small scale
industries reveals that the total number of
small scale industries has increased from
79.6 lakhs in 1994-95 to 110.10 lakhs in
2002-03, indicating an annual average
growth rate of 4.1 percent, 12.4 percent
production and exports recorded a growth
rate of 14.5 percent (Dutt and Sundharam,
2006). On the other hand, industrial
licensing, price controls, administrative
restrictions and regulations, and a highly
progressive tax rate on income and wealth
hampered domestic entrepreneurship. Small
scale entrepreneurship also facilitated
removal of regional disparity in business.
The items from a paper pin to
technology–based products were
manufactured in the sector and the units were
dispersed in districts, towns and villages all
over the country. Thus there was a
significant growth of small scale enterprise
population, their production and
employment, besides contributing to a major
share of country’s exports. Overall
performance of small–scale industries (SSI)
over the period 1994-95 to 2001-03 has been
provided in the Table-3 (Ruddar Dutt and
Sundharam, 2006).
183
K. Lavanya Latha / SJM 3 (2) (2008) 171 - 187
The data reveal that the total number of SSI
units has increased from 79.6 lakhs in 1994-
95 to 110.1 lakhs in 2002-03 indicating an
annual average growth rate of 4.1 percent,
but their production (at 1993-94 prices)
increased from Rs.1,09,116 crores in 1994-
95 to Rs.2,72,134 crores in 2005-06 i.e., an
annual average growth of 8.6 percent. As a
consequence of the increase in SSI units,
especially more in the unregistered sector,
employment increased from 191.4 lakhs in
1994-95 to 294.9 lakhs in 2005-06, recording
an average growth rate of 4.5 percent annum.
So, as far as exports by the SSI sector are
concerned, they were increased from
Rs.29,068 crores in 1994-95 to Rs.1,50,242
crores in 2005-06, recording a growth rate of
14.1 percent per annum and of employment
by 4.5 percent. The share of exports from the
small scale industries represents about 34.3
percent of total exports in 2005-2006. The
Ministry of Small Scale Industries has taken
an initiative for the introduction of Small and
Medium Enterprises Development Bill in
2005 which was stabled in Lok Sabha on
12th May. Despite such positive evidence in
favour of reserve items, the Union Budget
(1997-98) dereserved 14 items hitherto
manufactured by SSI sector. These items
included ice-cream, biscuits, synthetic soups,
a variety of automobile parts, corrugated
paper and boards, vinegar, poultry feed, rice
184
K. Lavanya Latha / SJM 3 (2) (2008) 171 - 187
Table 3. Production , Employment and Exports in Small Scale Sectors in India
** These figures relate to data given by Ministry of Small Scale Industries earlier.
Source: Ministry of Small Scale Industries as given in Economic Survey (2005-2006), p.166.
milling, dal milling etc., The small industry
is being perceived as vital sub-sector of the
economy. Small industry generates large
employment, removes regional imbalance by
contributing to the economic development.
5. CONCLUSION
In a country like India, only a few men
with growth perspective would come
forward for changing the stationary inertia
and creating preconditions for development
since they are motivated for higher
achievements rather than financial gains. It
is impossible to imagine any development
process without an entrepreneurial form, not
only in capitalistic economy but even under
the situation of state capitalism.
The process of development can be
visualized with two different types of
entrepreneurial activities. The
entrepreneurship can emerge either as a
result of individual efforts or collective and
cooperative efforts. The first type of
entrepreneurship is the potent source of
development. The experience of India has
shown that the public or cooperative techno
structures established in a backward region
have initiated actively leading to the
development of townships but have failed to
initiate the process of development in the
real terms. In such regions, since the public
and cooperative techno structure has its own
limitations, it is the local entrepreneurship
that must get it involved in the process of
development. The development would not
gather momentum if much reliance is placed
on the factors beyond local control.
Therefore, it is absolutely necessary to break
the vicious circle and initiate the process of
development. To start with, among others,
small – scale entrepreneurship is the most
desirable dent.
185
K. Lavanya Latha / SJM 3 (2) (2008) 171 - 187
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??????????????????? ? ??????
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a
, C. Madhavaiah*
b
and B.E.V.V.N. Murthy
a
a
????? ?? ?????????, ??? ???????????? ???????????,
????????, ?????? ??????, ??????
b
????? ?? ?????????, ??????? ???????? ?? ???????????? ? ???????????, ???????
?????,?????? ??????, ??????
????????
? ??????? ? ???????, ????? ?? ??????, ?????????????? ????? ??????
(???????????????????) ??? ???????? ????? ? ?????????? ??????? ?????. ??? ??????????
????? ???????? ? ?????????? ?? ?????????????? ? ??????? ??????????? ????? ?????????????.
?????????? ? ??????? ?????????? ???? ??????? ?? ?????????? ? ??????????????? ?????
?????????? ? ?????? ?? ????? ???????????????????. ?????? ????? ??????????????
?????????? ?? ??????? ?? ???????????? ????????? ? ???????. ????? ???????? ????????? ?????,
?????????????? ????? ????? ??? ? ???????? ????????? ? ????????? ????? ??? ??????
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doc_640366168.pdf
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.
1.INTRODUCTION
Entrepreneurship in India plays a catalytic
and important role in the economic
development. It has emerged as a dynamic
and vibrant sector of the economy. It is a
well recognized fact that a vibrant
entrepreneurship holds the key to economic
prosperity in an economy characterized by
abundant labour supply, unemployment and
SMALL SCALE ENTREPRENEURSHIP IN INDIA
K. Lavanya Latha
a
, C. Madhavaiah*
b
and B.E.V.V.N. Murthy
a
a
Department of Management Studies, Sri Venkateswara University,
Tirupati – 517 502, Andhra Pradesh, India.
b
Department of Management Studies, Siddharth Institute of Engineering & Technology Siddharth
Nagar, Narayanavanam Road, PUTTUR – 517 583, Andhra Pradesh, India.
(Received 12 November 2007; accepted 16 May 2008)
Abstract
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.
Keywords: Entrepreneurship, Entrepreneur, Small Scale Industry, India, Economic Power, and
Development
*
Corresponding author: [email protected]
Ser bi an
J our nal
of
Management
Serbian Journal of Management 3 (2) (2008) 171 - 187
www.sjm.tf.bor.ac.yu
underemployment, capital scarcity, growing
modern large industrial sector giving scope
for ancillarisation and so on.
Entrepreneurship has grown phenomenally
during the past five decades besides playing
a vital role in the fulfilling of our socio-
economic objectives.
Entrepreneurship has developed in a
systematic way since the beginning of
Industrial Revolution in Europe. The
development of entrepreneurship is essential
for rapid economic development and has
engaged the attention of economists,
sociologists, and psychologists to study the
phenomenon in the developed and
developing countries in recent years.
Consequently, the phenomenon of
entrepreneurship has been viewed from these
three dimensions. The research studies in the
field of entrepreneurship by an individual, or
a group have contributed largely to the
formation of various theoretical framework
for analyzing entrepreneurial behaviour,
however, these studies have been influenced
by the particular discipline to which the
individual or the group belongs. There has
not been any monolithic approach towards
theory-building in the field of
entrepreneurial development. Various
scholars have highlighted multiple
approaches to the study of entrepreneurial
behaviour and entrepreneurship. A scholar
of economics tends to emphasize the
economic aspects of entrepreneurship, a
sociologist analyses in terms of socio-
cultural environment, values and family
tradition, whereas a psychologist highlights
personality factor of entrepreneurship. No
single factor therefore works as the only
determining variable for the phenomenon of
entrepreneurship. However, the theoreticians
have made and have been making some
efforts to bring out some single factor as the
dominant one to analyse entrepreneurship.
In the light of above, the present study
attempts to get insights to review, in brief,
the evolution of the concept of
entrepreneurship, the definition of small
scale enterprise and also to study
development of the small scale
entrepreneurship in India. The study is based
on the secondary data made available by the
offices –Director of Industries and District
Industries Centres, various publications of
Government of India such as Census of
Small Scale Industries, Economic Survey,
Report on Small Enterprises (Abid Hussain
Committee) and Bulletins of Reserve Bank
of India.
2. EVOLUTION OF THE CONCEPT OF
ENTREPRENEURSHIP
The concept of “entrepreneur” and the
“entrepreneurship” have gone through
various stages before they came to signify
the content being put into them now. Various
thinkers have defined the term in a variety of
ways. In order to understand the
phenomenon of entrepreneurship as whole, it
is worthwhile to analyse these definitions
and views independently.
The word “entrepreneur” is derived from
the French verb “entreprendre”, means “to
undertake”. The word entrepreneur has been
in use since the sixteenth century. Kilby has
linked the entrepreneur with a rather large
and very important animal called
“Heffalump” hunted by many individuals
and have variously described him, but wide
disagreements still exist among them on his
particularities (Peter Kilbly, 1971). The
French men who organized and led military
expeditions were referred to as
“entrepreneurs” (Peterson, 1962).
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K. Lavanya Latha / SJM 3 (2) (2008) 171 - 187
Around 1700 A.D., the term was used for
architects and contractors of public works.
Quesnay regarded the rich farmer as an
“entrepreneur” who manages and makes his
business profitable by his intelligence, skill
and wealth (Desai, 1991).
In the 18th century, the old Oxford
Dictionary of 1897 defined entrepreneur
simply as “the director or manager of public
musical institution, i.e., one who ‘gets up’
entertainments, especially musical
performance” (Tandon, 1975). The
dictionary in its supplement of 1933
modified its definition and recognized that
the word has a place in business; it defines
entrepreneur as one who undertakes an
enterprise (Tandon, 1975), especially a
contractor acting as an intermediary between
capital and labour. Undertaking an
enterprise is entrepreneurship, and one who
undertakes it is one who combines capital
and labour for the purpose of production is
an entrepreneur.
The concept of entrepreneur has many
facets and the term has been used in a
different context with a different perspective.
Economists have recognized the
entrepreneur as essential agent in generating
investment opportunities. Sociologists
analyse him as sensitive energizer in
modernization of societies. The
psychologists examine him as an
“entrepreneurial man”, his motivations and
aspirations in order to decipher his character
which is conducive to economic
development. Political scientists regard him
as the fair child of political system which
provides effective assistance for his
emergence (Shravanvel, 1987).
In economic theories, the concept of
entrepreneur has been coined in terms of
functions. Richard Cantillon, an Irishman
living in France, was the first person to
introduce the term ‘entrepreneur’, in the
early 18th Century. He defined entrepreneur
as an agent who buys factors of production at
certain prices in order to combine them into
a product with a view to selling it at
uncertain prices in future (Kilbly, 1971).
Cantillon emphasized the function of ‘risk-
taking’ and ‘uncertainly bearing’. He
illustrates the concept by giving examples of
farmers, manufacturers and traders. The risk
and uncertainty is inherent in these activities.
Since Cantillon has stressed one aspect of the
concept, he could not enjoy economic
popularity for a long time.
Frank H. Knight defined the entrepreneur,
more or less, similar to those of Cantillon.
Uncertainty is defined as a risk which cannot
be insured against and is incalculable.
According to him, entrepreneur is an
economic functionary who undertakes such
responsibility of uncertainty which by its
very nature cannot be insured, or capitalized
or salaried. He also guarantees certain sums
to other means in return for assignments
made to them. According to him, the supply
of entrepreneurship involves three factors:
ability, willingness, and power to extend
such guarantee (Frank, 1957).
Jean Baptiste Say, an aristocratic
industrialist, and a French economist,
developed the concept of entrepreneur a little
further. He emphasized the functions of co-
ordination, organization and supervision. In
more simple words, an entrepreneur is one,
who combines the land of the one, labour of
another, and the capital of yet another and
thus, produces a product. By selling the
produce in the market he/she pays interest on
capital, rent on land, wages to labours and
what remains is his/her profit (Say, 1915).
According to J.B. Say, the entrepreneur is an
organizer and speculator of a business
enterprise, who combines economic
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K. Lavanya Latha / SJM 3 (2) (2008) 171 - 187
resources out of an area of lower into an area
of higher productivity and greater yield. He
has clearly distinguished between the role of
a capitalist as a financier and of an
entrepreneur as an organizer of a business
activity.
Say, Mill (1975) and Marshall (1961)
emphasized the role of entrepreneur as an
organizer and recognized the entrepreneur as
the central figure in a business enterprise,
however according to the critics, they failed
to see full significance of the role of an
entrepreneur of which combining factors of
production is only one aspect.
The concept of entrepreneur propagated
by all the above thinkers was in the context
of static conditions, and was not related to
the process of economic development.
Joseph Alois Schumpeter, for the first
time, in 1934, assigned a crucial role of
‘innovation’ to the entrepreneur in his
‘magnum opuses, the theory of ‘economic
development’ (1934). Schumpeter
considered economic development as
discrete dynamic change. Such
discontinuous dynamic changes are brought
about by entrepreneur by instituting new
combinations of the factors of production,
i.e., ‘innovation’ (Schumpeter, 1939).
Innovation may take place in the
following forms:
• The introduction of a new product in
the market.
• The instituting of a new production
technology which is not yet tested by
experience in the branch of manufacturing
concerned.
• The opening of new market into
which the specific product has not been
previously introduced.
• The discovery of a new source of
supply of raw material.
• The carrying out of the new form of
organization of any industry like the creation
of monopoly position or the breaking up of it
(Bisht, 1989).
Schumpeter further distinguished
between invention and innovation. An
inventor discover a new method and new
materials, and an innovator utilizes
inventions and discoveries in order to make
new combinations and thus produces newer
and better goods which yield him profit and
satisfaction. The inventor produces ideas
and the entrepreneur implements them. He
considered innovation as creative response to
a situation.
Schumpeter’s concept of ‘entrepreneur’ is
very wide, in the sense, he includes not only
independent businessmen but also to some
extent, dependent employees of a firm like
managers, directors and so on, provided they
do innovative work. On the other side, the
definition is narrow, because it does not
include industrialists and employees who
operate an established concern. According
to him no one is permanently an entrepreneur
so long as he gives creative and innovative
response to market situation. He, while
emphasizing the innovative function of an
entrepreneur, ignored his risk-bearing
function which is equally important.
Schumpeter wrote his theory of economic
development in the context of Industrial
Revolution of presently advanced countries
where some of the pre-requisites of growth
already existed. Inevitably, his theoretical
explanation corresponds to a particular social
and economic order that existed there during
that specific period. Innovation was
concentrated in a few fields in which big
entrepreneurs rose as the spearheads of
growth. Big innovations yielded a surplus
for reinvestment and in this way the
entrepreneur could invade the various
economic fields with spectacular success
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(Pritam, 1966).
The applicability of the Schumpeterian
‘innovative’ concept of entrepreneur to
underdeveloped economies is conditioned on
the above grounds. Things are likely to be
different in underdeveloped or developing
countries. In such situations, entrepreneurs
have to face numerous problems like
imperfect market; shortages of capital, of
skilled labour and of technical know how.
Against these odds they are required to
develop their industries. Naturally they
cannot reach the scale of operation
visualized by Schumpeter. But it does not
prove that entrepreneur in underdeveloped or
developing countries requires any less ability
and ingenuity. The business leader in
underdeveloped countries can also be called
an entrepreneur.
Peter Drucker defines an ‘entrepreneur’ as
one who always searches for change,
responds to it, and exploits it as an
opportunity, entrepreneurs innovate. Drucker
has aptly observed that ‘innovation’ is the
specific tool of entrepreneurs, the means by
which they exploit changes as an opportunity
for a different business or a different service.
It is capable of being presented as a
discipline, capable of being learned, capable
of being practised. Entrepreneurs need to
search purposefully for the source of
innovation, the changes and their symptoms
that indicate opportunities for successful
innovation. And they need to know and to
apply the principle of successful innovation
(Desai, 1991).
According to Drucker, three conditions
have to be fulfilled:
1. Innovation is a work. It requires
knowledge. It often requires great ingenuity.
It makes great demands on diligence,
persistence and commitment.
2. To succeed, innovation must build on
its own strength.
3. Innovation has to be close to the
market, focused on the market, indeed
market-driven.
According to Francis A. Walker, the true
entrepreneur is one who is endowed with
more than average capacities in the task of
organizing and coordinating the various
other factors of production. He should be a
pioneer and captain of an industry. The
supply of such entrepreneurship is however
quite limited and enterprise in general
consists of several grades of organizational
skill and capability. The more efficient
entrepreneurs receive a surplus reward over
and above the managerial wages and this
sum constitutes trade profit ascribed to
superior talent (Shravanvel, 1987).
The above definitions specified by
different thinkers, stress only selected
aspects of entrepreneurship. In modern
times, an attempt is made to generate a
comprehensive definition which tries to
highlight all facets and aspects of
entrepreneurial activity. These
multidimensional aspects may be stated as
follows to frame synthesized concept of
entrepreneur. In an enterprise, land, labour
and capital are separately owned respectively
by landowners, labours and financiers and
are divorced from one another. An
entrepreneur is an organizer, his organizing
ability brings them together in proper
proportions at reasonable rates and harnesses
them to work in production, attempts to
produce a socially valuable product, so as to
yield the best returns. As an organizer, he
also guarantees the specific sums to the
landowners, labours and financiers in return
for assignments made to them. An
entrepreneur bears the risk which is inherent
in any business activity. An entrepreneur
starts the enterprise, organizes it, supervises
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K. Lavanya Latha / SJM 3 (2) (2008) 171 - 187
it and engineers long-run plan of the
enterprise. He is a specially motivated and
talented person, who implements new ideas,
visualizes opportunities for introducing new
products, techniques, and production
process, new form of organization, discovers
new market and new source of supply of raw
materials. That is how, he innovates, and in
this way he takes upon himself the entire
responsibility of the enterprise.
According to B.C.Tandon (1975),
entrepreneurship means the composite
function of creating something new,
organizing and co-ordinating and
undertaking risk and handling economic
uncertainty. In this context, an entrepreneur
is the person who tries to create something
new, organizes production and undertakes
risk and handles economic uncertainty
involved in enterprise.
In the same context, the definition of
Higgins seems to be worth quoting,
“Entrepreneurship” is meant the function of
seeing investment and production
opportunities, organizing an enterprise to
undertake a new production process, raising
capital, hiring labour, arranging for a supply
of raw materials and finding site, and
combining these factors of production into a
going concern; introducing new techniques
and commodities, discovering new sources
of natural resources; and selecting top
managers for day-to-day operations of the
enterprise (Higgins, 1961).
According to William Diamond,
“Entrepreneurship is equivalent to
‘enterprise’ which ‘involves the willingness
to assume risks in undertaking an economic
activity, particularly a new one. It may
involve an innovation but not necessarily so.
It always involves risk-taking, decision-
making, although neither risk nor decision
making may be of great significance (1957).
Entrepreneurship refers to a process of
action; an entrepreneur (person) undertakes
to establish the enterprise. The term
‘entrepreneur’ has been defined as one who
detects and evaluates a new situation in his
environment and directs the making of such
adjustments in the economic systems as he
deems necessary. He conceives of an
industrial enterprise for the purpose of,
displays considerable initiative, goal and
determination in bringing his project to
fruition, and in this process, performs one or
more of the following:
• Perceives opportunities for profitable
investments;
• Explores the prospects of starting
such a manufacturing enterprise;
• Obtains necessary industrial licences;
• Arranges initial capital;
• Provides personal guarantees to the
financial institutions;
• Promises to meet the shortfalls in the
capital; and
• Supplied technical know-how
(Danhof, 1949).
The entrepreneurs’ role is to furnish
technical skills, commercial knowledge and
powers of administration, to assume
responsibilities and provide against
contingencies, to share and direct production
and organize and control the industrial
machine (Walker, 1986). Entrepreneurs are
people who have the ability to see and
evaluate business opportunities to gather the
necessary resources to take advantage of
them and to initiate appropriate action to
ensure success (Meredith, Nelson and Neck,
1982).
Psychological stress is a natural
concomitance of any creative activity. It is
much more so if the activity relates to an
intensely competitive area like business.
Entrepreneurs, being creative individuals,
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often experience such stress at various stages
of development of their enterprises (Pareek
and Rao, 1995).
Marbinson’s entrepreneur is not an
innovator but an organization builder who
must be able to harness the new ideas of
different innovators to the rest of the
organization (Frederick, 1956).
In modern context, the term
‘entrepreneur’ has been used in a broader
perspective. According to Vasant Desai
(2004), the entrepreneur brings in overall
change through innovation for the maximum
social good. Further, India which itself is an
underdeveloped country aims at
decentralized industrial structure to mitigate
the regional imbalances in levels of
economic development, small scale
entrepreneurship in such industrial structure
plays an important role to achieve balanced
regional development (Khanka, 1994) .
Lastly, the establishment of
Entrepreneurship Development Institute,
various developmental policies and alike by
the Indian Government during the last five
decades bear a good testimony to her strong
realization about the premium role of
entrepreneurship played in economic
development.
3. SMALL SCALE ENTERPRISE
To appreciate small scale
entrepreneurship in India, a basic
understanding of the definition and scope of
the terminology “small enterprise” is very
necessary. The definition of a small
enterprise varies across countries, industries,
agencies and authors. The terminology
“small enterprise” itself is used by different
countries by different nomenclatures such as
small business, small firm and small
industries and so on. Throughout this study
the terms small enterprise, small firm and
small business are used interchangeably.
Vepa (1988) has listed the various
terminologies used in some countries (see
Table 1).
Atkins and Lowe (1997) noted that as
many as 40 different definitions of small
firms have been reported in the literature,
and generally there appears to be very little
consistency in criteria used to define small
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K. Lavanya Latha / SJM 3 (2) (2008) 171 - 187
Table 1. Terminologies and scope of Small Industry in select countries
enterprises. The criteria are many, such as
number of employees, annual sales revenue,
value of fixed assets/plant and machinery
and the management structure.
In India, the small industry is defined in
terms of investment ceiling. Also the small
industry sector enjoys a special reservation
policy in terms of items of manufacture. The
investment limit ceiling was revised by the
central government from time to time,
depending on the industrial and economic
development and needs of entrepreneurs.
The evolution of investment limits of small
industries in India is shown in Table 2.
Initially, there was an additional condition
limiting number of persons employed, the
same was deleted in 1960. Further, the
investment ceiling was linked to plant and
machinery only, excluding investment in
other fixed assets i.e., land and building. The
reason was to define small industry with
respect to such investments mainly in
productive assets.
The investment limit was raised to Rs. 30
million based on the recommendations of the
Report of the Expert Committee on Small
Enterprises, with Dr. Abid Hossain as
Chairman. The report, submitted to the
Central Government in July 1997,
recommended that the definition of small
scale industries be broadened to small scale
enterprises and allowing incentives, credit
facilities, and promotional facilities to flow
to all small enterprises. On line with this, it
was recommended that the investment limit
of small scale enterprise be raised to Rs. 30
million. But later, it was felt that this raise in
investment limit up to Rs. 30 million did not
truly result in accelerated investments in
small enterprises. Large majority of small
enterprises still belong to the lower
investments up to Rs. 1 million. There was
also an apprehension that with the increased
investment limit up to Rs. 30 million, some
of the medium scale may roll back to small
scale thus bringing in unhealthy competition.
Therefore, the investment ceiling was, for
the first time in 1999, reduced from Rs. 30
million to Rs. 10 million.
It was in 1977, the Central Government
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Table 2. Evolution of Investment Limit for Small Industries in India
introduced a new category namely “Tiny
Sector Industries” with the small scale
industry category, particularly to provide
promotional measures and incentives to such
of the small industries having much lower
investment limits. The present investment
limit for tiny sector industries is Rs. 2.5
million in plant and machinery. For the
purpose of this study, the tiny sector is also
considered as part of small enterprises.
In United States, the Small Business
Administration, established in 1953,
provided financial, technical and
management assistance to help Americans to
start, run and grow their businesses. The size
standards of Small Business Administration
define whether a business entity is small, and
thus eligible for government assistance
reserved for small business concerns. Small
Business Administration establishes size
standards considering economic
characteristics, comprising the structure of
industry, including degree of competition,
average firm size, start-up costs and entry
barrier and distribution of firm by size. It
also considers technological change,
competition from other industries, growth
trends, and historical activity within an
industry. As reported in homepage of Small
Business Administration, America’s 25
million small businesses employ more than
50 percent of the private workforce, generate
more than half of the nation’s gross domestic
product, and are the principal source of new
jobs in the US economy.
Bolton Committee Report in UK indicates
that a small firm is defined by the number of
persons employed, (less than 200 for
manufacturing, less than 25 for construction
and less than 5 vehicles for transport) and by
turnover for retail trade (less than turnover
£50,000) and wholesale trade (less than
turnover of £200,000).
According to European Union
(Blackburn, 2001) approach the businesses
are classified as micro firms (less than 10
people); small firms (10–49 employees); and
medium–sized firms (50–249 employees).
Frequently, researchers combine small and
medium firms into a single category i.e.,
small and medium-size enterprises. Those
with 250 or more employees are classified as
the large firms.
Besides the statistical definition of small
enterprises in different countries, Atkins and
Lowe argue that the structure and decision
making process of an organization should be
the primary indicator of a small firm. They
explain that statistical definition of smallness
such as number of employees or annual
receipts may omit significant dimensions of
small firms. They refer to the involvement of
the business owners in the strategic planning,
forecasting, and performance comparison of
small firms. Further, Resnik (1988) argues
that one of the defining criteria of small
firms is the involvement of the owner-
manager in setting the business priorities,
objectives, and standards. This argument
suggests that a firm may be classified as
small, based upon the role of the owner-
managers and the extent to which their direct
participation in the management of the
business.
Alternatively, the small enterprises can be
defined using qualitative approach. Bolton
Committee Report in UK provided one of the
best-known approaches. This was in the form
of an ideal type combining three elements.
First, in economic terms, a small firm is
one that has a relatively small share of
market. Secondly, an essential characteristic
of a small firm is that its owners or part-
owners manage it in a personalized way, and
not through the medium of formalized
management structure. Thirdly, it is also
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independent in the sense that it does not form
part of a larger enterprise and that the owner-
managers should be free from outside control
in taking their principal decisions (Thomson,
2000)
Haksever (1996) notes that “in case of
small firms, the management is independent;
usually the owner is one of the managers and
reports to no one”. The summary of
Haksever incorporates the guidelines
established by the US Small Business
Administration, (Guide to SBA: Definitions
of Small Business, 1996) and arguments of
Atkins and Lowe. Haksever defines a small
business as one with fewer than 500
employees and exemplifying the following
characteristics:
1. Management is independent; usually
the manager is also owner.
2. Capital is supplied and ownership is
held by an individual or a small group.
3. The area of operations is mainly
local; workers and owners tend to be in one
home community, although markets need not
be.
4. The business is small, compared to
the biggest units in the field.
Nolan used the above definition in his
doctoral research on small business
performance. In Indian context, Chachadi
(1988) also adopted similar definition in his
doctoral research work on ‘Decision Making
in Small Industry’, as it incorporates
managerial aspects like ownership and
control. The definition of Government of
India only refers to ceiling on investment in
plant and machinery, which relates to
economic aspects, because financial and
capital resources of small enterprises are not
so abundant, as in developed countries. The
definition of Haksever has added
significance to the present study, as it does
not ignore local area of operation and local
owners and employees.
In an attempt to formulate qualitative
definitions of small firms, a key assumption
made, was that small firms were
fundamentally different from large firms. In
one of the classics of small business
theorizing (Penrose, 1959) this assumption
was summed up in the analogy that small and
large firms were fundamentally different
from each other as caterpillars are from
butterflies. It was noted that even if one
metamorphosis into other, it would not be
simply larger version of the other, and in case
of small firms, the chance of metamorphosis
is also not certain. Many small firms may
never grow beyond a small size, as most of
the ‘caterpillars’ may never become
butterflies (Blackburn, 2001).
Regarding size, Burrows and Curran
(1989) argue as “ Size, whether measured in
terms of number of employees, turnover,
market share whatever, is not sufficiently
robust criterion to allow ‘ small firms ’ to be
isolated and analyzed as having an economic
and social specificity ”. These authors
continue their arguments that smallness per
se is not technically a necessary
characteristic of an organization but a
contingent one. Smallness has the same
status as other characteristics such as legal
form of organization, type of economic
activity engaged, the technology employed,
region or local economy, the age, gender,
ethnicity and educational level of the owners
or workers of the firm etc.
Phansalkar (1996), a consultant to small
industries in India, argues that there is no
firm, indisputable and yet defensible
criterion for delimiting terms such as small
or large industry. What in India considered
being a giant, say automobile manufacturing
companies, may be possibly small in the eyes
of a global player in auto industry. He
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K. Lavanya Latha / SJM 3 (2) (2008) 171 - 187
further states that, in Indian situation, basis
of categorization on sales turnover, or
investment in fixed assets could also pose
problems, because there are instances of one-
man-show in an oil mill, where the sales
turnover could be over Rs.1500 lakhs (150
Million). Small enterprises may employ a
few people, and the management levels may
be of simple structure. On the other hand,
small enterprises having low capital
investment, according to the statistical
definition, could be involved in complex
business. In his opinion, the only possible
and defensible ground for categorization of
small, medium and large industry in Indian
context is by differentiating their
management problems. This means that
amount of complexity involved in
management of enterprises becomes a key
parameter for differentiating enterprises as
small or large. Parameters such as sales
turnover, investment in fixed assets, or
number of employees are simply surrogates
for complexity. Therefore, the paradox that
by definition, the small enterprises
management ought to be simpler, but seldom
it is based on the above arguments on
defining the small enterprises, it would be
unrealistic to demand uniformity of approach
in small business research. While the
European Union definition of micro and
small firms is widely used, many researchers
used the combination of definitions framed
by Small Business Administration (SBA
office of Advocacy, 1997), Atkins and Lowe
(1997) and Hoksever (1996).
4. OVERVIEW OF SMALL SCALE
ENTREPRENEURSHIP IN INDIA
Entrepreneurship is regarded as one
closely associated with economic history of
India. The evolution of the Indian
entrepreneurship can be traced back to even
as early as Rigveda, when metal handicrafts
existed in the society (Rao, 1969). This
would bring the point home that handicrafts
entrepreneurship in India was as old as the
human civilization itself and was nurtured by
the craftsmen as a part of their duty towards
the society. Before India came into contact
with the west, people were organized in a
particular type of economic and social
system of the village community. The Indian
towns were mostly religious and the
elaborated caste based diversion of workers
consisted of farmers, artisans and religious
priests (the Brahmins). The majority of the
artisans were treated as village servants.
Such compact system of village community,
effectively protecting village artisans from
the onslaughts of external competition, was
one of the important contributing factors to
the absence of localization of industry in
ancient India (Deshpande, 1984) . Organized
industrial activity was observable among the
Indian artisans in a few recognizable
products in the cities of Banaras, Allahabad,
Gaya, Puri and Mirzapur which were
established on their river basins as a means
of transportation facilities. Bengal enjoyed
worldwide celebrity for corah, Lucknow for
chintzes, Ahmedabad for dupattas and
dhotis, Nagpur for silk-bordered clothes,
Kashmir for shawls and Banaras for metal
wares. Thus till the earlier years of the
eighteenth century, India enjoyed the
prestigious status of the queen of the
International trade with the help of its
handicrafts.
Unfortunately, so much prestigious Indian
handicrafts industry, which was basically a
cottage and small sector, declined at the end
of the eighteenth century for various reasons
like disappearance of the Indian Royal courts
and entry of British people with the
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K. Lavanya Latha / SJM 3 (2) (2008) 171 - 187
competition of machine-made goods
(Gadgil, 1959). The emergence of
manufacturing entrepreneurship can be
noticed in the second half of the nineteenth
century. Ranchodlal chotalal, a Nagar
Brahman, was the first Indian to think of
setting up the textile manufacturing on the
modern factory lines in 1847, but failed. In
his second attempt, he succeeded in setting
up a textile mill in 1861 in Ahmedabad
(Spodak, 1965). But before this, the first
cotton textile–manufacturing unit was
already set up by a Parsi, Cowasjee
Nanabhoy Davar in Bombay in 1854
followed by Nawrosjee Wadia, who opened
his textile mill in Bombay in 1880. Probably
the major Indian contribution in the
Nineteenth century came in the field of
banking, where every important company
owned its existence, in part, to the enterprise
and capital of Indians (Rungta, 1970). A few
beginnings were made by Indians in heavy
industries–steel, engineering, electric power
and shipping (Lamb, 1955) in the early part
of the twentieth country. The most
spectacular of these ventures was by
Jamshedjee Tata, a Parsi, who was
responsible for India’s first viable steel
enterprise in Jamshedpur in 1911. The
Swadeshi Campaign i.e., emphasis on
indigenous goods, provided, indeed a proper
seed bed for inculcating and developing
nationalism in the country. It was the
influence of Swadeshi that Jamshedji Tata
even named his first mill as “Swadeshi Mill”.
The spirit of indigenousness strengthened its
roots so much in the country that the Krishna
Mills in its advertisement of Tribune of April
13 made the following appeal “Our concern
is financed by native capital and is under
native management throughout (Joshi and
Ram, 1975). The second wave of
entrepreneurship growth in India began after
the First World War. The government gave
mild protection and some encouragement to
the select forms of enterprise, especially
sugar and cement. By 1939, there were
11,114 companies (not all of them industrial
concerns) which were mostly functioning in
and around Bombay, Calcutta and
Ahmedabad with a capital investment of Rs.
290 crores. In 1945, the number of
companies had gone up to 14,859 and the
capital investment had risen to Rs. 389 crores
(Agrawala & Singh, 1979). The
development that took place did not bring
about either a degree of regional balance or
major structural changes in the Indian
economy. The entrepreneurs who
contributed to this development were mostly
drawn from the well known business houses
and families such as Birla, Tata, Dalmia –
Jain, Bangur and Thapar(Hozari, 1965). In
the post 1990, the new class of entrepreneurs
like Dhirubhai Ambany of Reliance,
Brijmohanlal of Hero Honda, Anji Reddy of
Dr.Reddy Lab, Narayana Murthy of Infosys,
Azim Premji of Wipro, Ramalingaraju of
Satyam Computers and many more have
taken the country as one among the most
preferred countries for investment in the
world. There are about 2542 listed
companies in the Bombay Stock Exchange.
The market capitalization of the traded
companies on Bombay Stock Exchange is
Rs. 22, 51,012 crores (The Economic Times,
2005).
India relies mostly on the performance of
agricultural and industrial sectors for their
economic development. The agricultural
sector has a vast employment potential but is
unable to absorb the fast multiplying
population. This situation calls for
developing alternatives to meet the needs of
ever growing population. So our planners
and economists focused attention on
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K. Lavanya Latha / SJM 3 (2) (2008) 171 - 187
accelerating the economic growth through
rapid entrepreneurship in the present era. In
fact the small scale entrepreneurship has
been assigned high priority in the
development of economy of the country.
Entrepreneurs contributed relatively more in
a society, which had free economy and
provided high prestige and security to
entrepreneurs than the one, which had
relatively more regulated economy and
provided lesser prestige and security.
When India attained Independence, the
new government began to realize the need
for accelerating industrial development and a
general protectionist system was introduced.
Consequently, the various Industrial Policies
provided major guidelines for industrial
development and at the same time the
government started to provide various
incentives and concessions in the form of
capitalist, technical know – how, markets
and land to the potential entrepreneurs to
establish industries in the industrially
potential areas to remove the regional
imbalances in development. The Five Year
Plans provided the necessary frame work
through their specific programme for
economic development of the nation. Several
institutions like Small Industries
Development Organization, National Small
Industries Corporation, Small Industries
Service Institutes at the Central Government
and Directorate of Industries, Financial
Corporations, Small Scale Industries Board,
District Industries Centres were also
established by the State Government to
facilitate the new entrepreneurs in setting up
their enterprises. Expectedly, the Small
Scale Units emerged very rapidly in India
witnessing a tremendous increase in their
number from 121,619 in 1966 to 190,727 in
1970 registering an increase of 17,000 units
per year during the period under reference.
The family entrepreneurship units like Tatas,
Birlas, Mafatlals, Dalmias, Kirloskars,
Ambanies, Brijmohanlals, Narayana Murthy,
Azim Premji and others grew beyond the
normally expected size and also established
new frontiers in business in this period.
District Industries Centres at the district level
functioned as nodal centres for development
of small scale entrepreneurship in rural and
semi urban areas. District Industries Centres
operated as ‘single window’ agency through
which all assistance needed for small scale
entrepreneurship were streamlined. List of
products reserved for small industries
increased dramatically from 180 to 540 and
later to 812. The Third Census of small scale
industries reveals that the total number of
small scale industries has increased from
79.6 lakhs in 1994-95 to 110.10 lakhs in
2002-03, indicating an annual average
growth rate of 4.1 percent, 12.4 percent
production and exports recorded a growth
rate of 14.5 percent (Dutt and Sundharam,
2006). On the other hand, industrial
licensing, price controls, administrative
restrictions and regulations, and a highly
progressive tax rate on income and wealth
hampered domestic entrepreneurship. Small
scale entrepreneurship also facilitated
removal of regional disparity in business.
The items from a paper pin to
technology–based products were
manufactured in the sector and the units were
dispersed in districts, towns and villages all
over the country. Thus there was a
significant growth of small scale enterprise
population, their production and
employment, besides contributing to a major
share of country’s exports. Overall
performance of small–scale industries (SSI)
over the period 1994-95 to 2001-03 has been
provided in the Table-3 (Ruddar Dutt and
Sundharam, 2006).
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K. Lavanya Latha / SJM 3 (2) (2008) 171 - 187
The data reveal that the total number of SSI
units has increased from 79.6 lakhs in 1994-
95 to 110.1 lakhs in 2002-03 indicating an
annual average growth rate of 4.1 percent,
but their production (at 1993-94 prices)
increased from Rs.1,09,116 crores in 1994-
95 to Rs.2,72,134 crores in 2005-06 i.e., an
annual average growth of 8.6 percent. As a
consequence of the increase in SSI units,
especially more in the unregistered sector,
employment increased from 191.4 lakhs in
1994-95 to 294.9 lakhs in 2005-06, recording
an average growth rate of 4.5 percent annum.
So, as far as exports by the SSI sector are
concerned, they were increased from
Rs.29,068 crores in 1994-95 to Rs.1,50,242
crores in 2005-06, recording a growth rate of
14.1 percent per annum and of employment
by 4.5 percent. The share of exports from the
small scale industries represents about 34.3
percent of total exports in 2005-2006. The
Ministry of Small Scale Industries has taken
an initiative for the introduction of Small and
Medium Enterprises Development Bill in
2005 which was stabled in Lok Sabha on
12th May. Despite such positive evidence in
favour of reserve items, the Union Budget
(1997-98) dereserved 14 items hitherto
manufactured by SSI sector. These items
included ice-cream, biscuits, synthetic soups,
a variety of automobile parts, corrugated
paper and boards, vinegar, poultry feed, rice
184
K. Lavanya Latha / SJM 3 (2) (2008) 171 - 187
Table 3. Production , Employment and Exports in Small Scale Sectors in India
** These figures relate to data given by Ministry of Small Scale Industries earlier.
Source: Ministry of Small Scale Industries as given in Economic Survey (2005-2006), p.166.
milling, dal milling etc., The small industry
is being perceived as vital sub-sector of the
economy. Small industry generates large
employment, removes regional imbalance by
contributing to the economic development.
5. CONCLUSION
In a country like India, only a few men
with growth perspective would come
forward for changing the stationary inertia
and creating preconditions for development
since they are motivated for higher
achievements rather than financial gains. It
is impossible to imagine any development
process without an entrepreneurial form, not
only in capitalistic economy but even under
the situation of state capitalism.
The process of development can be
visualized with two different types of
entrepreneurial activities. The
entrepreneurship can emerge either as a
result of individual efforts or collective and
cooperative efforts. The first type of
entrepreneurship is the potent source of
development. The experience of India has
shown that the public or cooperative techno
structures established in a backward region
have initiated actively leading to the
development of townships but have failed to
initiate the process of development in the
real terms. In such regions, since the public
and cooperative techno structure has its own
limitations, it is the local entrepreneurship
that must get it involved in the process of
development. The development would not
gather momentum if much reliance is placed
on the factors beyond local control.
Therefore, it is absolutely necessary to break
the vicious circle and initiate the process of
development. To start with, among others,
small – scale entrepreneurship is the most
desirable dent.
185
K. Lavanya Latha / SJM 3 (2) (2008) 171 - 187
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??????????????????? ? ??????
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a
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a
a
????? ?? ?????????, ??? ???????????? ???????????,
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