CONCEPT OF ENTREPRENEURSHIP
RURAL URBAN DIVIDE
BASIC TRAINING FOR PROSPECTIVE RURAL
BENEFITS OF RURAL ENTERPRISES TO NATION
FACTORS RESPONSIBLE FOR LIMITED GROWTH
HOW TO MOVE FORWARD
Topics covered (contd..)
• GATHERING INFORMATION
• PROJECT REPORT
• SOURCES OF FINANCE LEGAL REQUIREMENTS
• MARKETING ISSUES
• TRAINING/SKILL DEVELOPMENT
• BASIC INFRASTRUCTURE
• OPPORTUNITIES FOR RURAL ENTREPRENEUR
• RURAL TECHNOLOGIES
• PURA AND RURAL ENTERPRISES
• WAY AHEAD
• SUM UP
• The farming activity is itself an example of
entrepreneurship as it has all elements of an
enterprise i.e. land, labour, process, technology,
inputs, finance, risk, marketing etc.
• Our farmers invest money, labour and inputs to
get the final out put i.e. harvest.
• However, the income level of the farmers/rural
people is much lower than the urban people.
• We have discussed various reasons while
learning about processing and marketing etc.
• Sometimes, it is said that risk taking capacity of
rural people is lower than the urban people,
which is not correct.
• Agriculture itself is a high risk low return activity,
and farmers are taking risk year after year to
increase the agriculture production.
• The farmers can prove to be better entrepreneurs
if proper training is provided
Several advantages are there in rural areas
specially in respect of agro-products and animal
husbandry related industries.
• Since the farming is seasonal activity, the
farmers can start and run small and micro
• In the present scenario ,the rural areas are source of
raw materials and the urban areas are acting as
• This reminds us the typical set up during industrial
revolution when colonies were source of raw
materials and European Nations
and selling back the same to undeveloped nations.
• Prosperity will not come to rural areas unless the
value addition takes place at the rural areas itself.
• The absence of entrepreneurship in rural areas is
main cause of poverty in rural areas.
• The farmers are at loss whether ,it is bumper
crop or famine.
• Establishment of micro or household industries
in rural areas can break the cycle of poverty .
• This will not only bring prosperity but also
provide employment to youth and landless
• The energy of womenfolk can be used for
productive purpose with establishment of small
and micro enterprises in rural areas.
• This will also result in saving of huge amount of
energy in form of transportation of bulky raw
materials and manpower going daily to nearby
urban areas for employment.
• The present discussion will be focused on
issues related to prospects and problems
related to entrepreneurship in rural areas and
also the various activities which can be taken
up without huge investment and specialized
CONCEPT OF ENTREPRENEURSHIP
The entrepreneurs were earlier referred as
persons participating in military expeditions.
Now the person/ group of persons who start a
business or expand the existing business with
full knowledge of risks involved are said to be
The following qualities are important for any
person to become an entrepreneur.
1. Motivation-Self motivated persons with
desire to perform better.
2. Energetic: capacity to work for long hours.
Creative:finding simple solutions rather than
Flexibility : as the business environment is
dynamic and demand ,supply ,products etc.
keep changing rapidly ,flexible approach is
Analytical powers :keeping the risk and
uncertainty involved in business, the
analytical power is required to calculate the
risk take appropriate measures to manage it.
Leadership: since various people are involved
in business at various levels, leadership
qualities are needed to bind them as an
Vision: Since the enterprise is considered to be
“going concern”, the person handling the
business must have vision towards future and
take steps to avoid redundancy.
The qualities described above are only
indicative, in addition to those indicated above
the rural entrepreneur should have additional
• In a typical rural scenario the person has to deal
with problems of infrastructure.
• The socio –economic set up in rural areas is
different and the person of rural background
will have advantage.
• Similarly, knowledge of local language and
customs is also necessary for any entrepreneur.
• A farmer owning and cultivating land in same
village will be ideal person to start a micro or
• Taking advantage of forward & backward
linkages is key to success for any rural
RURAL URBAN DIVIDE
• Agriculture as primary
• Variety of occupation
• Generally underemployed people
• People having more
than one employment
• Lack of infrastructure
• Over burdened infra
• Low cost of labour and
• High cost of labour and
• Cheap local raw
• Costly raw materials
• Poor education and
• Better education and
• More prone to natural
• Less prone to natural
• Difficult access to
• Easy access to new
• High marketing cost
• High production cost
• Poorly organized
• Highly organized
• Migration of talent to
• Over population due to
Having gone through the advantages and
disadvantages of rural areas as far as
establishment of industries is concerned
we may observe that following type of
industries can be established in rural areas:
a) Labour intensive: food processing,
herbal medicines, assembly units etc.
b) Space intensive: bio mass based
(paper/pulp), livestock based etc.
c) Low capital: small, tiny and cottage
industries like handicrafts etc.
d) Industries without power: like vegetable
dyes, terracotta etc.
e) Seasonal: like sugar, khandsari
f) Service based: service centers for
agriculture implements, e-chaupals etc.
g) Skill training based: small computer
training institutes and other skills in
BASIC TRAINING FOR PROSPECTIVE RURAL
• We certainly do not require MBAs to run or
start rural enterprises.
• Some basic training is necessary for rural
people to become prospective entrepreneur.
• Motivation through success stories and actual
visits to successful enterprise in the area
• Information related to government agencies
and their role
• Systematic way of identifying opportunity
• Access to model projects or sources for
preparation of project reports
• Sources of finance
• Government programmes or subsidies
• Knowledge of accounting
• Training in the area selected by prospective
• Certain general aspects will be discussed in
detail ,however in a dynamic environment
things are changing too fast and latest
information must be collected by person.
BENEFITS OF RURAL ENTERPRISES TO
• The trend of establishment of rural industries
will reverse the migration to urban areas.
• The ever increasing slums in urban areas will
• The crumbling infrastructure of urban areas
will get a reprieve.
• Nation will save huge sum of money in form of
• The reduced cost of production may result in
higher exports and import substitution of
small value goods.
• It will unlock potential of crores of underemployed people and increase the GDP of
• Use of non conventional sources of energy
will be encouraged as vast potential for use
of bio gas, solar energy, wind and water
energy exist in rural areas.
• The large amount of agriculture, horticulture
and animal husbandry related produce going
waste will be gainfully utilized.
• Public Investment in rural infrastructure will
give higher returns and it will encourage
• Mahatma Gandhi was one of the prime
supporters of khadi and village industries
even before industries.
• One of the basic philosophy was to keep the
three basic needs of human beings out of
purview of mechanization to generate
employment i.e. food, shelter and clothing.
strategies were worked out in the form of five
• The first plan :Boards were created for
development of six specific rural sectors i.e.
khadi, coir, silk, handicrafts, handlooms,
• Second five year plan: Role and activities of
KVIC increased. Items reserved for small
scale industries. Technologies resulting in
unemployment were discouraged.
• Third five year plan: cluster development
approach initiated, training and skill
development projects were launched. Rural
Industries Project was launched.
• Fourth five year plan: emphasis on quality
and financial viability of rural industries.
Provision of financial assistance to KVIC for
• Fifth five year plan: Agriculture was given
less importance as compared to industries.
• Sixth five year plan: Programmes named IRDP
and TRYSEM were launched to promote rural
entrepreneurship. The programme introduced
the concept of subsidy and self employment
first time to rural people.
• Seventh five year plan: The strategy of the
plan was to enhance the level of earnings of
small enterprises by providing assistance in
form of technology, entrepreneurship skills
and finance.Several dedicated institutions like
Small Industries Service Institute
• National Institute of Small Industries
Extension and Training, National Institute of
development ,NSIC,DIC etc were activated to
• Eighth five year plan: The focus was shifted
from rural & cottage industries and era of
reforms started. The emphasis was to invest
in infrastructure and catalyze the growth.
Private investment welcomed in all sectors.
Reserved items were removed from list one
• Ninth five year plan: agenda of globalization
was taken further. Separate ministry was
created for small scale and agro industries.
Marketing support for KVI products was
• Tenth five year plan: Cluster based
development was proposed with financial
assistance from KVIC, NABARD, SIDBI and
• Eleventh Plan: Technology up gradation, skill
development and quality improvement with
focus on employment generation.
Factors responsible for limited growth
• Though we have already discussed about the
disadvantages /advantages of rural areas as
far as growth of enterprises is concerned.
• Some external factors were also responsible
for limited development of rural enterprises.
Though the factors indicated below can be
reversed in favour of rural industries:
• Subsidy and target oriented programmes
encouraged people to somehow avail the
subsidy and the enterprise could not sustain
• Technology developed at faster rate and the
rural people could not get the benefits.
• The electronic media diverted the attention of
youth from enterprise to wage employment or
jobs for easy life, it also promoted migration.
• The limited infrastructure expenditure was
concentrated to urban areas as private
investment was not allowed.
• The image of rural enterprise was limited to
“khadi cloth”, “achar –murabba” or “kachhi
ghani oil”, which resulted in rural areas
becoming source of raw materials only.
HOW TO MOVE FORWARD
• We have discussed about the past and
problems, but future of rural industries is
• The growing concern about environmental
degradation and reducing carbon emission
opens a flood gate of opportunities for rural
industries, low technology, low energy
intensive and natural products.
• Increasing interests in organic products,
chemical free cosmetics and vegetable dyes
etc can open a flood gate of opportunities for
• Export of small items from toys to school bags
has boosted Chinese economy and made it a
world leader in economic development.
We will now discuss about the options, sources
of finance and technologies available to youth
for starting new enterprise.
As and when a person decides to start an
enterprise, he has choice to take up any of the
Manufacturing or processing
Trading ,retail sales ,distribution etc.
Combination of above activities
The rural enterprise can be owned in one of
the following ways:
• Individual ownership (in most of the cases,
this pattern is there)
• Partnership or private limited companies
(when the business grows ,the above
formations take place for expansion)
• Cooperatives: these institutions have legal
identity and formed by willing people for
achieving a common goal.
• Group ownership : It includes NGOs, VOs,
• The groups like, self help groups though do
not have formal structure but they can run an
enterprise and also eligible for bank finance.
• The choice of ownership pattern will depend
on the type of business activity and
requirement of manpower or money required
for the particular enterprise.
• For example, a forest produce based activity
is generally taken up by group of persons in
form of cooperatives or self help groups.
• However in case of trading, the best
structure is individual ownership.
Proprietorship or individually owned
• In this case the individual called Proprietor
is absolute owner of the enterprise. His
liability is 100%.
• This structure is best suited for small
enterprises where capital requirement is low
and many legal complications are not there.
• The sense of ownership and passing the
business to next generation are best
• However ,this type of organizations have
limited access to the bank funds and no
access to public funds in form of shares.
• Partnership concerns can have maximum 20
persons as partners working together for
common goal and objective.
• The firms are governed by Indian Partnership
• The partners can take advantage of best
abilities of each other and pool the
resources for enterprise.
• It is always better to have a written
agreement to avoid any legal issues later on.
• The partnership concerns fail when the
duties and responsibilities of partners are not
PRIVATE LIMITED COMPANY
• The private limited companies can have 2-50
• The liability of the shareholder is limited in this
case ,as the personal assets are separate from
the assets of the shareholders.
• The promoters of public limited companies have
better control on day to day affairs of the
• The private limited companies have better
access to bank finance .
• This type of organization is suitable for medium
PUBLIC LIMITED COMPANIES
• The public limited companies can have minimum
7 shareholder and there is no limit on maximum
• The company can raise money from general
public by issuing shares or debentures.
• The public limited companies have to follow the
norms and laws as per companies act 1956.
• Such organizations are generally out of purview
of rural enterprise as the size of business is
small, however a successful entrepreneur can
convert the small enterprise into company.
NGO / Voluntary Organizations
• A group of 7 or more persons can start NGO
for public service and specific objective.
• The NGOs are registered under Society’s
Registration Act 1860.
• Specific rules and regulations are formulated to
manage the day to day affairs of NGOs.
• These organizations can receive government
grants or public donations.
• The voluntary organizations are registered
under any of the act like Indian Trust Act,
Society’s Registration Act etc.
• These organizations are promoted by self
motivated, social service oriented people.
SELF HELP GROUPS
• These are informal groups of 10-20 persons
from below poverty line families.
• The groups are formed for mutual help and
people pool there small savings for mutual
benefits on agreed terms.
• The groups are eligible for bank finance and
can graduate into joint liability groups for
starting rural enterprises.
• Various schemes of GOI & NABARD are
available for the SHGs so that the members
can come out of the cycle of poverty.
COMMUNITY BASED ORGANIZATIONS
• The CBOs are also informal
• They come together for common cause
or objective, however there economic
status may be different.
• They also receive funds from various
donors and GOI .
• There is no liability on part of members
as the donor agencies make necessary
enquiries before release of funds.
• These are association of persons coming
together for common objectives, and the
organizations are controlled by elected boards
and functioning of organization is based on
• There could be different types of cooperatives
like producers, marketing, credit or housing etc.
• The cooperatives could be single state or multi
• The success of AMUL in milk processing and
marketing is an example for entire world but we
could not replicate the same….why??
Either the entrepreneur himself acts as
innovator or he can contact certain institutions
to get business ideas suitable for rural areas.
The following institutions are dealing in this
EXTEN. CENTERS OF AGRICULTURE UNIV.
TECHNICAL CONSULTANCY ORG IN EACH
7. CENTERS FOR ENTREPRENEURSHIP
8. DEVELOPMENT COMMISSIONER
HANDICRAFTS/ COTTAGE INDUSTRIES
Some institutions are dealing purely in
business ideas related to agriculture produce:
ICAR & ITS EXTENSION CENTERS
NATIONAL MEDICINAL PLANT BOARD
NATIONAL INSTITUTE FOR ORGANIC FARMING
FLAVOURS & FRAGRANCES DEVELOPMENT
Once a person decides to start a business, he
has to gather certain information related to
business whether external finance is involved
Similar enterprise in area and its viability.
Availability of raw materials (nearby
Technology or know how
Availability of labour and skilled persons
Related government policies/promotional
Prospective buyers and demand pattern
Once an entrepreneur firms up the type of
enterprise proposed to be established he will
have to make a project report even if
institutional finance is not involved.
• The project report helps the person to take
objective decisions and also compare the data
at the time of planning and actual
• The following information is required for a
typical rural enterprise:
1. Name of entrepreneur and nature of the
2. Demand for the item, planned capacity and
3. Source of raw materials, present cost and
approximate quantity required.
4. Technology and skill required including
5. Manpower requirement
6. Cost of building, plant and equipments
7. Recurring expenditure
8. Finance required at initial stage and the
9. Financial appraisal showing viability of the
project by methods such as IRR, BCR etc.
SOURCES OF FINANCE
All entrepreneurs are not financially sound and
may require assistance from financial
institutions or banks for the project.
Various sources of finance are;
Agriculture and Rural Development Banks
Regional Rural Banks
SIDC of various states
Non Banking Finance Companies
Subsidies are also available under various
• Though the household and cottage industries do
not require any registration, the small scale
industries require registration with DIC.
• Registration with Trade Tax, Service Tax etc. is
also required depending on nature of work
• In case the enterprise can be classified as
industry, the following laws are also applicable:
– The Factories Act
– The Industrial Dispute Act
• The following laws are applicable even if the
enterprise is not classified as industry:
• Minimum wages act
• Payment of gratuity act
• ESI Act
• Payment of wages act
• Payment of Bonus Act
• Prohibition of child labour
• Pollution control act
• Other specific laws applicable to various
type of activities
• Marketing of rural produce is prime concern for
the rural entrepreneurs .
• The rural areas act as markets for the person
choosing service industry or trading as
• However, the urban areas and other villages act
as markets for the manufacturing or producing
• Some of the rural products even have export
• Depending on the type of products market mix
can be planned.
• Direct marketing to bulk consumers (e.g.
hotels for primary or secondary processed
foods) through contacts.
• Marketing through retail outlets of KVIC
• Participating in mela, haat or exhibitions
• Direct sales to whole sellers/exporters
• Direct sales to industries in advance
processing field like Ayurvedic Medicines
• Marketing through cooperative marketing
system like Amul
• Marketing through Web Site
• Marketing through Mega Retail Stores like
Spencers (e.g. high tech agriculture
produce, cut flowers, ready to cook
• Marketing through Government Emporium
(handicrafts, handloom items, silk items)
• Direct marketing through weekly market in
• Taking supply contracts from bulk buyers
like Army etc.
Every entrepreneur should undergo specialized
training before entering into a venture specially
manufacturing, service or high tech agriculture.
Specific skills development or area specific training
institutes are conducting training for youth, such as;
CIMAP for medicinal plants
NBRI for floriculture
CFTRI for food processing
NIRD for rural technology related projects
NABARD is sponsoring various skill training
pogrammes through NGOs.
The intending youth can get details from various
web sites and News Papers or contact Kisan Help
• We have already discussed the importance
of infrastructure for development ,however
the minimum requirements are indicated
– All weather roads
– Water supply
– Banking etc.
Opportunities for rural entrepreneur
• The number of opportunities existing in
rural area are unlimited, considering its
area, population, bio diversity and
different agro climatic zones.
• We will now discuss the broad areas
under which the opportunities can be
classified and few time tested ideas.
Farm based enterprise
• Organic farming: the demand for organic
products is increasing day by day.
• The certified organic products have good export
• All inputs are available in rural areas ,if number
of farmers take up this activity ,trading is another
option for entrepreneurs.
• Floriculture: good demand exist in urban areas.
If the village is located near to urban areas ,cost
of transportation will be low.
• High tech agriculture: Production of exotic
vegetables, off-season vegetables, mushrooms
etc are covered under this. The demand for the
produce is increasing with increase in income of
• Medicinal plants: demand for cultivated
medicinal plants is increasing due to reduced
availability of medicinal plants from forest.
• Ayurvedic drug manufacturers are also
entering into contracts with farmers for supply of
• Aromatic plants: demand for natural perfumes
is increasing due to health issues related to
chemical products. This has open gate for
commercial production of aromatic plants.
• Commercial forestry: waste lands not fit for
agriculture can be used for commercial forestry.
Plants like eucalyptus, poplar, bamboo etc can
be raised. Paper mills, matchstick manufactures
and furniture makers are buying these items.
The bamboo tree can be utilized for more than
• Bio fuels: about 30 verities of plants have
been identified for production of bio fuels.
Jatropha is one such verity. Raw oil can
be extracted in rural areas for further
refining into bio diesel.
• Seed production: good quality certified
seeds are in great demand and marketing
is very easy.
Food processing & agro waste based
• Food processing is most preferred activity for
• The value addition is considerable and the
market is open and expanding.
• We have already discussed this topic in detail.
• Millions of tons of agro waste is burnt every
• Simple option is to convert the waste into
briquettes which can be burnt in place of
coal/wood in various rural /urban industries.
• Several other products such as rice bran
oil, Gum from tamarind seeds etc. can be
extracted at commercial scale.
• There are several other products like hand
made paper, board, packing paper and
corrugated paper boards etc. which can
be made in rural areas.
Farm nutrition/ Pesticide products
• Presently our farmers are over dependent on
chemical fertilizers for farming operations.
• The farmers can produce several organic
fertilizers like compost, vermi –compost, neem
based and other herbal pesticides etc on
commercial scale for own use and sale in urban/
• The matter has been covered in details in
organic farming module.
• The products are very low energy consuming
and use raw materials which are otherwise
Animal husbandry based enterprise
• Dairy is most popular and organised rural
enterprise, the scale can start from 2-3 animals
to hundreds of animals .
• Processing and distribution of milk is related
• It is expected that milk production in terms of
money will cross the paddy very soon.
• The next popular enterprise is poultry.
• In addition to sale of eggs and the poultry birds,
the poultry feed industry is also a viable
• In addition to the produce from living animals,
certain rural industries are based on the residue
of dead animals like bones and hide etc.
• The commercial rearing of various animals like
pigs, sheep, goats and rabbits for wool and meat
is also a popular enterprise in rural areas where
grass is easily available.
• the topic has been discussed in detail in animal
• Misuse of hormones, chemicals and unethical
rearing practices are major concerns for this
• Sericulture is very popular in certain pockets of
India and is an old profession.
• The silk garments are very popular and the
sericulture can be taken up on commercial scale
as there is no problem in sale of raw as well as
• Apiculture on commercial scale is gaining
popularity not only for direct domestic sale but
also for export .
• The honey bees also contribute towards
pollination thereby increasing agriculture
• Aquaculture can be practiced in any part of
country where water is available.
• The waste lands, degraded lands and closed
brick kilns can be converted into fish tanks
• the aquaculture can also be practiced with other
allied industries like poultry as waste of one can
be used in other.
• In costal areas, the shrimp or prawn culture is
also popular .
• India is famous for traditional crafts based
on skills and local materials.
• There is huge export market for crafts and
• Those interested in trading can buy the
products from small manufactures and sell
it in urban markets.
• The cooperatives or self help groups of
producers can also take up trading
• This sector is providing employment to lakhs of
rural people presently, but only traders from
urban areas are benefited from sale of the items
produced by rural people .
• If the cooperatives or self help groups of
weavers can take up this activity, the benefit will
go to rural people.
• Similarly the rural entrepreneurs can also take
up this activity by value addition like ready made
• Huge export potential exist in EU for the hand
woven ,vegetable dye products without quota
• India is an importer of edible oils.
• Production, extraction, packing, certification etc
are potential areas having good demand.
• The by- products of oil extraction industry can be
used for animal feed industry.
• Some of the by-products can be used for making
several health products for human consumption
like de-oiled ground nut powder, coconut husk,
soy bean etc .
• Service sector,growing at a high rate in urban
areas, has good potential in rural areas also.
• Repair shops, service centers, PCO, internet
café, hiring of agriculture implements & tractor,
computer and other skill training centers have
good scope in cluster of villages.
• Success of the e-chaupals has opened door for
replication of this model.
• Entertainment, cable TV ,rural tourism and
amusement parks (near urban areas) are also
some of the potential areas for entrepreneurs in
Service sector and Small units
• Changed consumption pattern has opened
doors for trading activities in rural areas.
• Demand for fast moving consumer goods as
well as consumer durables such as television
sets, mobile phones, DVD players etc is
• Rural areas are also consuming large amount of
agriculture inputs such as fertilizers, seeds,
pesticides and insecticides etc.
• Various development programmes are being
executed through Panchayti Raj Institutions, who
are engaging contractors for civil /mechanical
works. Rural youth can enter into this business.
• Various banks, financial institutions and
other extension agencies are executing
programmes through NGOs.
• Educated rural youth having social service
inclination can form NGOs /VA s for dual
purpose of social service and business
• There are many sources for getting technology
inputs for establishing a rural enterprise however
the Directory of Rural Technologies published by
NIRD, Hyderabad is very useful .
• The book in three volume covers technological
inputs for construction, hi-tech agriculture,
fertilizers, fisheries, post –harvest technologies,
mechanical works, leather technology, water
conservation, natural dyes, solar heaters and
cookers, bio-gas ,food processing etc and is
very useful for prospective entrepreneurs.
PURA and Rural enterprises
• PURA aims at all types of connectivity within
• If the programme like PURA is implemented in
India, we will be able to see changed rural
• It will give tremendous boost to Rural Industries
• Developed infrastructure will attract the rural
youth to come back to rural areas, this will also
generate employment in service sector.
• The present day problems of rural India can not
be solved without reducing the dependence of
rural population on agriculture income alone.
• Since migration to urban areas is not feasible,
rural industries alone can help us.
• We have to list the low technology high labour
intensive products being imported .
• As a first step, the products can be introduced to
• People will be willing to pay high cost if the
quality is good.
• Food processing may be second step towards
• We have discussed the process of
establishing a rural enterprise in detail.
• The opportunities are tremendous but
takers are few.
• Reason is lack of infrastructure and
• The media has spread the glamour of
urban life and speeded up the process
• Coordinated efforts of various agencies
are required to achieve the goal of rural