Section B : Chapter - 7

Policy Perspectives in India to Promote Entrepreneurship

Entrepreneurs are playing a major role in accelerating the pace of economic development all over
the world by their innovative and creative approach to the process of production and product
launching in the market. They have thus, helped to usher a new economic order, perception of
new opportunities and converting them into profitable ventures. Developed countries have
nurtured this spirit of enterprise building in their people. The developing countries on the other
hand have not been able to maintain high levels of economic growth, possibly because of their
neglecting the spirit of creativity and innovation. The major retarding factors to Indias economic
growth and development are poverty and chronic unemployment. Small-scale Industries and
Small Businesses typically provide a vital alternative to tackle these twin problems.
Their merit-cum-strengths are:

Less Capital requirement

Labor intensive character
Optimum technology adoption
Dispersal in rural and backward areas
Contraction of regional imbalances
Quick adaptability
Operational flexibility
Export orientation
Utilization of local resources
Mobilization of savings
Distribution of wealth
Generation of new employment
Keeping larger firms competitive
Encouraging innovation and creativity
Fostering the spirit of entrepreneurship

Government has taken steps to encourage entrepreneurship in the country and positive steps have
been taken during the last five decades. Experience indicates that financial assistance and special
incentives have been realized mostly by entrepreneurs who came forward on their own.
In urban areas, these schemes have received very good response but in many underdeveloped
areas, the funds have remained unutilized, as there were not enough takers. Most of us possess
natural desire to improve our economic status. Motives and drives governing our efforts in this
direction vary from one individual to another. When these efforts are spreads on to a wider
canvas wherein the individual possessing certain knowledge or skills is simply driven by the urge
to become ones own master, he strives to launch a business venture and then manage it
profitably. This by no means is an easy task. Similar sentiments are reflected in an old proverb,
which implies that it is
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Easy to start a business but it is difficult to sustain in a business.

To run even a small business, independently or collectively requires one to cope with a host of
uncertainties such as finding the materials, components, suppliers, cost determinations, quality
standards, etc. He has a decision-making role in where to make, what to make and how much to
make. He as well handles all managerial functions.
A certain enterprises are needed to manage these various complexities in a successful way. The
entrepreneur has to have not only the ability to solve these problems but also to take rational
decisions, be creative and provide leadership, which enhances productivity and promoters
innovation. Greater demands are placed on the entrepreneur to evolve systems, which ensure that
both managers and workers are motivated and fulfilled.
The growing popularity of small business is reflected in its acceptance as part of the mission of
many high schools, colleges and universities in western countries. Entrepreneurship and small
business management are now academically respected disciplines. Linda C Rhodes reports in
The Wall Street Journal (July 14, 1997, Page A 14) that efforts of the U.S. Federal, School-toWork Opportunities Act of 1994 and New York Citys National Foundation for Teaching
Entrepreneurship have resulted into courses in entrepreneurship being offered at most prominent
colleges and universities.
Indeed, many universities have a designated-chair professor who is undertaking research,
training and teaching. Association of Collegiate Entrepreneurs (ACE) founded in 1983 had
hundreds of chapters throughout the world. Stephanie N. Mehta in the article Its getting easier
for MBAs to find jobs at smaller firms (The Wall Street Journal, July 8, 1997, page B 2) states
that some campus career centres and student-run organizations try to place MBAs with small
companies where they can get the appropriate experience to start their own business. Higher
Education Research Institute at the University of California at Los Angeles reveals that over 40%
of college freshman believe that succeeding in their own business is very important and essential
to them. Over 60% of American College Students now want to go into business for themselves.
On the other hand, most MBAs from Indian Colleges and Universities have their first priority is
seeking a placement after completing the course with virtually no long-term vision about their
careers.
It is interesting to quote here the work of Prof. John P. Kotler, who is Konosuke Matsushita
Professor of Leadership at the Harvard Business School. In his book, The New Rules,
published in 1995, he reveals what it takes to succeed in the post-corporate world. He did a
landmark twenty-year study of 115 students of Harvard Business School who graduated in 1974.
He describes how the globalization of markets and competition is altering career paths, wage
levels, the structure and functioning of corporations, and the very nature of work itself. Based on
actual cases he concludes that
Conventional career paths through large corporations no longer lead to success as they once
did. Globalization is creating large markets and enormous new opportunities. The opportunities
have shifted away from large bureaucratic companies to smaller or more entrepreneurial ones.
Over 40% of the 1974 class are entrepreneurs by 1992. Their mean compensation is almost
double than those who are professional managers and more than 50% of them enjoy power
autonomy as against only 20% of the remaining who continue to serve as mangers.
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Since independence, the Govt. of India, has promulgated several Industrial Policy
Resolutions/Statements (IPR/IPS) aimed at promoting industrial growth and
simultaneously entrepreneurship.
The IPR of 1948 envisaged a mixed economy and emphasized the entrepreneurial, promotional,
regulatory and planning roles of the state in the industrialization of the country. An emphasis was
laid on the promotion of cottage and small-scale industry as they could play a critical role in
creating self-employment. The earlier recommendation to establish a Cottage Industries Board to
foster the growth of SSU was accepted.
The IPR of 1956 resulted to a leap to initiate measures to improve the competitive strength of
the small enterprises. This policy recognized the role of SSI Sector in providing employment
opportunities, mobilizing local skills and capital resources, and integration with the large sector.
States took initiatives in developing industrial estates, provide production technologies, other
amenities and incentives.
Industrial Development Bank of India (IDBI) was established in 1964. IDBI was meant to
provide financial assistance to cottage, tiny, small and medium enterprises through refinance of
industrial loans granted by State Financial Corporations, State Industrial Development
Corporations, Commercial Banks, Co-operative Banks and Regional Rural Banks. It also
covered provisions for rediscounting of bills, seed capital assistance to new entrepreneurs,
finance for purchasing machinery on lease or hire purchase and others.
Industrial Finance was in the control of Commercial Banks. This finance was not flowing freely
to the entrepreneurs setting up their enterprises in small sector. A very bold step was taken to
nationalize the banks in 1969, which paved the way to avail the loans on easier terms and
conditions.
The Industrial Licensing Policy of 1970 restricted the role of large industrial houses and
foreign concerns to the core, heavy and export-oriented Units. In other words, non-core sector,
where technology is indigenously available and employment opportunities are more, was left to
entrepreneurs creating small enterprises. With a view to shift the focal point of development for
SSI/SSE from rural pockets, District Industries Centres (DIC) were proposed to be set up to
provide under a single roof all the services and support required by the small and village
entrepreneurs.
The Industrial Policy Statement of 1977 emphasized that whatever can be produced by the
Small and Cottage Industries must only be so produced. Notable policy issues arising were:

 Expansion of the list of reserved items for exclusive production by the SSI sector from 180 to
807 items.
Enhanced limits for investment in plant and machinery for tiny, SSI and ancillary units to Rs.
1, 10 and 15 lakhs respectively.
Mass creation of DICs.

Separate wing of IDBI to deal with credit requirement of small sector.

Promotion to technological self-reliance.
Restricted role towards foreign capital and collaboration.
Rehabilitation programmes for sick units.

The IPS of 1980 was a watershed in the development of SSI sector. The policy emphasized the
ancilliarization and the creation of clusters for the growth of this sector. Main initiatives were:

Modernization of small industries particularly in adopting of the right technology and energy
conservation.
Thrust to export-oriented units.

Selective but speedy approval to foreign capital and collaborations.

Integrated Industrial Development.
Further enhanced limits for investment in plant and machinery for tiny, SSI and ancillary
units to Rs. 2, 10 and 25 lakhs respectively.
The Govt. of India, announced major changes in the Industrial Policy on 24th July, 1991. The
salient features of this new policy were:

Abolition of industrial licensing in most cases.

Security and strategic concern area reserved for public sector.
Automatic clearance for import of capital goods.
Location clearance required only for polluting industry.
Broad-blending facility for existing units.
Liberal foreign investment.
Automatic permission for foreign technology.
Changes in MRTP Act.

On 6th August 1991, the Government announced a new policy for small and tiny enterprises.
The salient features of this new policy were

Equity participation up to 24% by other industrial undertakings.

Legislation to ensure payment of SSI bills.
Credit demand of SSI to be fully met. Factoring services from SIDBI.
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 Investment limit for tiny sector Rs.5 lakhs; SSI Rs.60 lakhs and ancillary and export-oriented
unit Rs.75 lakhs.
Relaxation from specified Labor Laws to tiny sector.

Service sector to be recognized as tiny sector.

Marketing assistance through PSU and NSIC.
In 1993, The Reserve Bank of India announced a special package of measures to ensure
adequate and timely credit to the small-scale sector. The salient features of this package are:

Banks should give preference to village industries, tiny industries and other small-scale units,
in that order, while meeting the credit requirement of the small-scale sector.
Banks should step up the credit flow to meet the legitimate requirements of the SSI sector in
full during the Eighth Five Year Plan.
Effective grievance redress machinery within each bank, which can be approached by the SSI
in case of difficulties, would be set up.
Banks should adopt the single window clearance scheme for meeting the credit requirements
of small-scale units.
Investment ceiling on plant and machinery for SSI/ancillary units was raised from Rs.60 lakh/75
lakh to Rs.3 crore and for tiny units from Rs.5 lakh to Rs.25 lakh, in 1998. However, in
December 1999, Government decided to reduce the investment ceiling from Rs.3 crore to
Rs,.1 crore (No change in respect of tiny units).
Current impact of the above policy initiatives is reflected in the role of various support
organizations for an entrepreneur.