Академический Документы
Профессиональный Документы
Культура Документы
who should be capable of making use of the government policies and schemes for the
betterment of rural people. Some individuals who happen to be local leaders and NGOs and
who are committed to the cause of the rural people have been catalytic agents for
development. Though their efforts need to be recognized yet much more needs to be done to
reverse the direction of movement of people, i.e. to attract people to the rural areas. It means
not only stopping the outflow of rural people but also attracting them back from the towns
and cities where they had migrated. This is possible when young people consider rural areas
as places of opportunities. Despite all the inadequacies in rural areas one should assess their
strengths and build on them to make rural areas places of opportunities. This is much to do
with the way one sees the reality of the rural areas. The way a survivor or a job seeker would
see things would be certainly different from those who would like to do something
worthwhile and are ready to go through a difficult path to achieve their goals. It isn't that
there is a dearth of people with such mindset. But with time they change their minds and join
the bandwagon of job seekers due to various compulsions. Enabling them to think positively,
creatively and Entrepreneurship purposefully is utmost for the development of rural areas.
Young people with such perspective and with the help of rightly channelized efforts would
usher in an era of rural entrepreneurship. In this country successful rural entrepreneurs would
solve many of the chronic problems within a short time.
To promote entrepreneurs who would take to rural entrepreneurship in utmost earnestness
and sincerity is to ensure rural development. Such enterprising people who prefer rural
entrepreneurship may or may not themselves belong to rural areas. Entrepreneurs taking to
rural entrepreneurship should not only set up enterprises in rural areas but should be also
using rural produce as raw material and employing rural people in their production
processes. Rural entrepreneurship is, in essence, that entrepreneurship which ensures value
addition to rural resources in rural areas engaging largely rural human resources. In other
words, this means that finished products are produced in rural areas out of resources
obtained in rural areas by largely rural people.
The entrepreneur may or may not be of rural origin. The entrepreneurs may be from
anywhere, but their enterprises have to be located in a rural area, using mainly local resources
both material as well as human. Also, the enterprises have to be located in a rural area though
it need not be actually using 100% local material and human resources. Some amount of
material and some people may be from urban cities. But certainly large portion of material
used has to be locally produced and an appreciable number of people engaged in the
production of finished goods should be people based or living in rural areas.
Even a unit set up by the government or a large company in a rural area could promote rural
entrepreneurship depending on how much opportunities it throws up for entrepreneurs to use
local resources, to fulfill the demands of such large units and the multiplier effect such large
units create. Any large unit coming up in rural areas more or less does have an impact in
activating the surrounding economy for entrepreneurs to take advantage of. This is precisely
the reason why it is recommended to shift industries from urban centers to neighboring rural
areas. Such shifting initially may be a difficult proposition but in the long run beneficial in
many ways. Moreover, it would throw up lots of opportunities in the rural areas and result in
decongestion of the urban centers. Urban slums would start disappearing with large number
of industries getting shifted to rural areas resulting in increasing opportunities in the rural
areas. Thus, both the rural as well as urban areas get benefited by setting up more industrial
units in the rural areas, making rural areas attractive locations for investments.
1.
Low self-image and confidence.
Motivational inputs, unfreezing and
experience sharing by successful local
entrepreneurs.
2.
No faith on others includes friends.
Group building experiences.
3.
No exposure to industry/business.
Field visit to factories and big markets.
4.
Who to contact for starting a venture,
Information inputs on procedures and
what formalities and procedures are to
formalities.
be followed?
5.
How to know whether the identified
Opportunity identification and
business is a viable and sound
guidance.
proposition?
6.
9.
How to read and write accounts?
Functional and numerical literacy.
Simple accounting in terms of writing
income and expenditure.
10.
Almost no technical skills
Technical training (on-the-job training).
The merits of partnership are ease of formation, large resources, and combined abilities and
judgment, flexibility, quick decisions, cautions operations, survival capacity, better human
and public relations, improved chances of growth and protection of minority interest.
The demerits could be lack of harmony, divided authority, instability of business, lack of
public confidence, risk of implied authority, unlimited liability, non-transferability of interest
and social losses.
Private Limited Company
In this case the shareholders are the owners. There must be a minimum of 2 (two)
shareholders. The Indian law allows maximum of 50 (fifty) shareholders. The liability is
limited in this case. As such if the company goes bankrupt then no one has to part with one's
other personal assets to meet the obligation of the creditors.
Being a private limited company, one can raise far less money than a public limited company.
But there is better control as the number of shareholders is few besides they may be your kith
and kin. Many provisions of Company Law are not applicable to private limited companies.
There is much less paperwork too. Companies are governed by Companies Act, 1956.
Public Limited Company
In this case the shareholders are also the owners. There must be minimum 7 (seven)
shareholders. There might be millions of shareholders as there is no such upper limit. Being a,
public limited company it can raise more money from the public by issuing equity shares,
debentures, etc. to meet various expenses of the company.
All provisions of the Company Law are applicable here. It is more of a professional
organization and is fully governed by the Companies Act, 1956. It is to be noted that merit of
forming a company are many such as large financial resources, limited liability, continuity,
transferability of shares, benefits of large scale operations, professional management, public
confidence, scope of expansion and growth, social benefits, tax benefits, etc.
3] CLUSTER FORMATION
It is primarily a formal and non-formal group of people to achieve a common objective.
It basically covers Non-Governmental Organizations (NGOs), Voluntary Organization (VOs), SelfHelp Groups (SHGs), Community-Based Organizations (CBOs) and networking of all these.
NGOs
These are non-profit making organizations registered under the Society's Registration Act, 1860. A
group of seven people come on a common platform to carry out defined activities for the socioeconomic development of people.
The main characteristics of NGOs are:
These are initiated, sponsored and constituted mainly by the Government as autonomous bodies to
fulfill specific developmental objectives.
These receive funds mainly from the Govt. and channelize them through VOs.
These are usually non-political in nature.
5
iv) These are formal organizations with rules, regulations and procedures with professional
management.
VOs
These are voluntary agencies initiated by individual for welfare and development. They may or may
not be registered under any appropriate Act. Generally these are registered under any appropriate Act
like Societies Registration Act, 1860, Indian Trusts Act, 1882 or Religious Act, 1920. These frame
their own Memorandum of Associations, rules and regulations and systems for their governance. The
VOs receive funds from various donor agencies including NGOs.
VOs are generally managed by persons with motivated leadership and commitment. Their main
promoters are honorary with a strong desire to serve the people.
SHGs
Self-help groups are a platform of 10-20 people mainly, below the poverty line (BPL) to form a social
group not only to mutually help each other but also to achieve common objective. Only one member
from a family is eligible for membership group. The Swanjayati Gram Swarozgar Yojana (SGSY) of
the Ministry of Rural Development, Govt. of India covers all aspects of self-employment of the rural
poor viz. organisation of the poor in SHGs and their capacity building, training, selection of key
activities, planning of activity clusters, infrastructure building up, technology and marketing support.
,
This is a non-formal group. The SHGs get funding from the NGOs, VOs and even from the
Government to carry out various activities in areas of common interest and an objective for economic
empowerment.
CBOs
These are community based organizations and are informal in nature. Specific community with a
specific avocation forms a group to carry out various activities in a group. A CBO is a group of people
from a common living area of habitat who get together for a common cause. The overall objective is
to enhance the bargaining strength of individuals in the group. For example: fishermen group, cobbler
group, milk producers, etc.
4] COOPERATIVES
According to ILO, a cooperative organization is an association of persons usually of limited means,
who have voluntarily joined together to achieve a common economic end, through formation of a
democratically controlled business organisation making equitable contributions to the capital required
and accepting a fair share of risks and benefits of the undertaking.
According to International Cooperative Alliance (ICA) "A cooperative is an autonomous association
of persons united voluntarily to meet their common economic, social and cultural needs and
aspirations through a jointly-owned and democratically controlled enterprise".
Food Processing
Food processing covers variety of products from various sectors comprising agriculture, horticulture,
plantation, animal husbandry and fisheries & marine products. India is one of the major food
producers in the world and has enough availability of a wide variety of food-grains, fruits, vegetables,
flowers, livestock, poultry, fish and seafood. Diverse climatic conditions and a long coastline has
contributed to India's position as a large food producer with variety. However, the food processing
industry is still a low-key affair and only two
7
percent of fruits and vegetables and 15 per cent of the milk produced are processed in the
industries as a whole.
The processed food industry, which ranks fifth in size in the country, represents 6.3 per cent of
GDP. It accounts for 13 per cent of the country's exports and 6 per cent of total industrial
investment which is estimated at US$70 billion, including US$22 billion of value added products.
After India started pursuing the path of economic liberalization this sector has been attracting
Foreign Direct Investment across different parts of the world in almost all the sectors.
Mushrooms
Mushrooms including the commonly known Dhingri grow on decaying tissues of plant
material under normal conditions.. It is light grey in colour and has pleasant flavour. The study at
CFTRI, Mysore has shown that it can be cultivated easily under normal conditions of temperature
(21 to 2SC) and relative humidity ( 5% to 75%) for a period of 6 to 8 months in a year in many
parts of the country. It can also be cultivated in summer months, by providing extra humidity and
low temperature with the use of modem techniques.
The spawn (seed material) of mushroom is the ramified mycelium, which is used as which is used
as seed. The spawn is prepared by inoculating the pure culture of mushroom on paddy jowar straw
under certain conditions. This is known as master spawn. This can be stored at room temperature
for a period of 3 months from the date of inoculation.
Mushrooms have got tremendous market, both domestic as well as international. Local market
also has two segments, one is the domestic consumer and the other is the business consumer at
hotels and restaurants. Use of Mushroom has increased substantially at local level in the recent
past.
Chikki Industry
Chikki is a popular and traditional Indian sweet. It is known by different names in different
languages and in different States. The ingredients which go into production chikkies are
puffe&rmsted Bengd gram, groundnut, puffed rice, beaten rice, coconut scrapings
8
individually or in combination. The sweetening agents are added to the preparation. is a popular
item and has potential both in internal as well as export markets.
The main production areas of Chikki are Lonawala & Khandala in Maharashtra which are located
on the Mumbai-Pune highway. In this area several smallscale units produce Chikki with over 100
varieties which are of very high quality products.
Poultry Industry
Poultry farming is one of the fastest growing industries in India. It is quite profitable and
can be managed by persons of all ages from all walks of life in all sections of the country.
It may be conducted as an exclusive business or as a side business for additional income.
The National Commission of Agriculture states that poultry farming has certain special
Strategies and Experiences features, which favour its large-scale adoption by small and
marginal farmers and agricultural labourers. Land required for poultry farming is small; the
capital investment for starting small poultry units is less. Poultry farming can be started on a
small scale and can be expanded gradually. It does not require heavy investment and the raw
materials are easily available. Also short-term training facilities are available and even
uneducated people could set up poultry farms. Profits are earned much sooner than most other
farm products.
Some of the advantages of poultry keeping are:
Supplies nutritious food for the people.
Serves as hobby and sport for some people.
Requires less capital to start a poultry unit and gives good and quick
Needs little space and can be done in phases.
Water requirement is less as compared to crop cultivation or farming.
Waste products like bran and substandard grains can be utilized.
Eradicates garden pests such as caterpillars, insects and snails.
Gives rich fertilizer for crop cultivation especially for vegetable gardens.
Poultry feathers are useful in many ways.
It is a favourable side business to agriculture.
Gives income throughout the year.
Not much labour is involved and generates self-employment.
Supports many ancillary units.
Easy to manage, even women and children can look after them.
Some medicines and tonics are obtained from poultry as by-products.
Presently it is a well-organised agro-industry where people with limited or adequate finances
can start commercial poultry farming.
Oil IndustryThe vegetable oils are essential ingredients of food needed for the growth and
maintenance of human body. Crushing of oil seeds to obtain edible oil for human consumption has
been an age-old village industry in India. The Telis have been an important component of the village
society. Either they have been crushing oil-seeds procured by them or providing oil extraction service
to oil-seed producers. This provides nutritious oil with natural flavour and taste.
The village oil industry employs lakhs of artisans in rural areas. This industry renders service to the
society in two-ways; it supplies fresh, flavoured and nutritious oil to the consumers on the one hand
and provides employment to the traditional artisans and others unemployed, on the other.
In order to increase the production of oil, all sources of equipment must be utilized Since Ghani is a
simple machine, which needs low capital and small quantity of raw materials, it must be encouraged.
Pottery
The pottery is traditional industry of rural India. In fact it is age-old industry where the pottery
products are used within rural India by rural folks for cooking (Handi), storing water (Matka & Surai)
and crockery and cutlery in the form of Kullar, etc.
The urban Indians are using the pottery products for plants, very special kitchen items made up of
china clay for serving tea, coffee, clay bowels for preparing curds and serving food.
This area covers large number of activities in rural India where youth can undertake the activity of
higher taste. This being a purely service oriented sector, a person with good interpersonal relations and
qualities will win over the business competition, which in any case is basic requirement to become a
successful entrepreneur.
10
Rural Tourism
India is one of the oldest, culturally richest and diverse country full of colour and boasts of a
civilization with rich flora and fauna. Our cuisine is mouth watering, scenic beauty is
breathtaking, folk dances are simply enchanting and wide array of places of tourist attraction from the valleys of Himachal Pradesh, hills of Uttranchal, plains of the river Gang% forests of
North East, or plateau of South India, In other words, India is simply full of diversity and that is
why the latest blitz of the Government terms her as Incredible India.
Nearly two-third Indians live in villages; in fact our roots are located in rural India. Moreover
most of tourist sites are located away from the urban centres towards rural India and the trend is
also shifting towards the rural areas. There is wealth of craft performing art, vivid lifestyle and
cultural diversity obtaining in rural India.
Entertainment
In the absence of leisure time Bs well as purchasing power, the rural folks are generally devoid of
the entertainment which everyone needs for rest and relaxation. With the reach of electronic media
the rural youth has developed a taste towards music, dance, acting, etc. in addition to traditional
songs, folk dances, cultural activities, traditional games and sports which can be used as source of
revenue generation. This type of service can be provided either by an individual having good
financial background or by a small group rendering and promoting such activities and services in
rural India on various occasions such as social functions, VIP visits, etc.
Such events are attracting not only the domestic tourist but international tourist also is now keen
to observe Indian customs, culture and costumes thus becoming a very good source of income for
the rural unemployed youth.
Modern Industries
With the Government efforts to extend the development initiatives to rural India especially in
developing States, the Modem industries are being given special packages and relief with tax
benefits for setting up the industries at a subsidized cost with the aim to provide job opportunities,
infrastructure development in terms of road, power, water supply, e t ~T.h is, in consequence,
leads to overall increase in the living standards of local people where the modem industries are
being set up by various national and international companies. As a matter of policy, the industries
are being asked to shift from the large townships like metros especially to decongest and lessen
the burden on the urban centres.
These industries offer great opportunities of varied nature of jobs for local youth who are educated
and are willing take challenging assignments, whether wage-employment or self-employment
type. The employment opportunities are basically based on qualifications, skills and expertise
while self-employment opportunities or indirect employment opportunities are based on the
various types of industry related trade or service activities which the rural youth can undertake
and be gainfully employed.
Modern industry is now playing very important role ever since globalization and liberalization
policy of Government came into existence and it has definitely helped the rural youth in finding
suitable vocation.
11
12
Machineries suppliers
Packing materials suppliers
Customers
Dealers
Consultants
Employees of similar enterprises
Bank officials
Promotional agency and regulatory agency officials
Association of similar product(s) manufacturers and so on.
Information on Business Ideas - There are numerous directories, handbooks and databases published by
the Govt. of India, Associations and other agencies for obtaining information on opportunities.
13
Capital Organization
Capital is the prime requirement for any project. Term lending institutions such as State Financial
Corporations (SFCs), State Industrial Development Corporations (SIDCs), State Industrial Investment
Corporations (SIICs), Commercial Banks, etc. are the prime sources for meeting the project cost such
as :
Land cost and land development charges,
Construction of buildings,
Purchase of plant and machinery,
Acquiring technical know-how,
Procuring miscellaneous fixed assets,
Margin of working capital,
Contingencies, etc.
While sanctioning loans, the financial institutions consider the credit worthiness of the project beside
the payback capacity of the project. Hence assessment of financial viability is a must before releasing
the funds.
Support System
Information about support system is a must for an enterprise. In short-term it is the information which
helps in-sound decision making. The information could be on infrastructure facilities, incentives
available, financial tie-ups, availability of raw materials, tax concessions, etc.
Information on various infrastructure facilities such as availability of land, power, and water, facilities
for effluents or wastes disposal should be available from the District Industries Centre of the District
or from the concerned State Directorate of Industries. For financial tie-ups the State Financial
Corporation and its branches which are located at various districts of the State can effectively guide.
14
Even commercial banks of the locality could be approached. Also proper analysis has to be done by
comparing relevant facts and figures so that the best term or package is available to the entrepreneur.
There are tax concessions and other allowances available from time to time by the Central
Government or the concerned State Governments in the form of tax holidays, sales tax incentives, etc.
for which the concerned District Industry Centre (DIC) shall guide. They can also advise as to how to
meet various provisions of income tax, sales tax, excise duty, etc. depending upon the nature of the
product.
MARKET ASSESSMENT
For sound market assessment three things are important such as
Analysis of Market Demand
Market demand for a product is the total volume that would be bought by a defined customer group, in
a defined geographical area, in a defined time period, in a defined marketing environment, under a
defined marketing programme. Hence, there are eight elements of variables which must be analyzed in
order to determine market demand.
The Competition
For a particular product of different brands, the competitive situation could be assessed by analyzing
the market share, price, product features, product age, discount to dealers, credit terms, major
customers, etc. of a brand vis-a-vis the other.
Trading Practices
An Entrepreneur must try to understand the trade practices that are relevant to her/his product. The
intermediaries in the channel, prevailing sales tax, legal implications, etc. have to be understood
properly for assessing market.
In selection of a product of service, there is the need to analyze the market through primary and
secondary data. These data can help to assess the current demand, the forecast and the potential of a
particular product or service besides the opportunities and risks available to it.
Primary Data & Secondary Data
It is the information which is collected first -hand through field work or survey by various methods
such as Questionnaires, Personal Interviews, etc. There are various methods of collecting primary data
i.e. observation method, experiment method and survey method.
Secondary Data: Information which already exists in documented form. Such sources can be
Annual reports of the companies
Trade publication and records
Libraries and trade information centers
Directories of manufacturers
15
FEASIBILITY REPORT
It is very essential to prepare a feasibility report covering all the activities and the resources needed
for the project. The feasibility report broadly contains the following:
The background of the entrepreneur i.e. the educational background, family background and
professional exposure
Market potential and marketing strategy
Selection of location of the project which should be on the basis of proximity to the source of raw
materials and/or markets, availabilities of labour, infrastructural facilities, incentives, etc.
Requirements of land and building. It is to be ensured that the land is free from any legal
encumbrances
Requirement of plant and machinery including their installation
Manufacturing process
Requirements of utilities such as water and electricity
Requirements of raw materials and sources of supply
Estimated cost of the project
Means of finance
Cost of production, taxes and profitability
h) Break-even point
16
this Act, the minimum contribution payable by the employer towards provident fund is 8.33% of the
salary. The employee has to make an equal contribution. The details and modalities could be obtained
from the Regional Provident Fund Commissioner. Various other schemes which are covered under this
Act are
a) Employee Family Pension Fund and b) Deposit Linked Insurance Scheme.
4. Wage Legislation
It covers the following Acts:
Payment of Wages Act, 1936,
Payment of Gratuity Act, 1972,
Payment of Bonus Act, 1965, and
Minimum Wages Act, 1948.
Payment of Wages Act, 1936 - This Act is applicable to establishment where ten or more workers are
employed on any day of the preceding 12 months with the aid of power and twenty or more workers
without the aid of power. Wages mean basic pay, dearness allowance, city compensatory allowance,
overtime wages and production incentives. As per the norms, necessary registers for wages and other
related matters have to be maintained.
Payment of Gratuity Act, 1972 - It is applicable in all establishments in which 10 or more persons are
employed. Gratuity shall be payable to an employee who has put in uninterrupted service for a
minimum period of five years.
Payment of Bonus Act, 1965 - The Act applies to establishments employing ten or more persons.
Under the Act the employer is liable to pay bonus to employees as an annual statutory payment
irrespective of profits. This Act includes all employees drawing wage or salary up to Rs. 3500 per
month. To become eligible for bonus, every employee must have worked for 30 working days in the
establishment in the relevant accounting year. A minimum 8.33% of wages actually earned during the
financial year subject to minimum of Rs. 1,0001- is payable to each eligible employee irrespective of
profit or loss.
Minimum Wages Act, 1948 - This is applicable in 44 scheduled industries. Basic wages are fixed for
different industries and special allowances are announced by the labour commissioner every six
months. Necessary registers have to be maintained.
18
industrialization, And d) to facilitate participation of financial institutions for higher credit flow to
rural industries. The REGP scheme is applicable to all village industries project set up in rural areas.
The eligible agencies under the scheme are (i) individuals (rural artisans/entrepreneurs) ii) institutions
cooperative societies, Trusts & SHGs for projects up to Rs. 25.00 lakhs.
Under the scheme, the borrower is required to invest her/his own contribution of 10 percent of the
project cost. In case of SC/ST and other weaker section borrowers, the beneficiary's contribution will
be 5% of the project cost. Banks will sanction 90 percent of the project cost in case of general
category borrowers and 95 percent of the project cost to the weaker section beneficiaries/institutions
and disburse full amount of the loan. After the sanction of the credit facility by the Bank branch,
eligible amount of Margin Money will be kept in Term Deposit of two years in the account of the
borrower at the leading bank branch, which will be credited to the borrower's loan account after a
period of two years from the date of first disbursement of loan.
21
Investment in infrastructure in general (roads, electricity, and communications) also reduced poverty
by enhancing agricultural, productivity growth, thus increasing farm incomes and expanding the nonagricultural sector.
Power: Generation and distribution of electricity from various sources has a catalytic role in
development of rural enterprises. Accelerated Rural Electrification Programme (AREP) envisages at
providing supply of electricity for production oriented activities like rural industries, minor irrigation
and electrification of villages.
To give impetus to rural electrification, the Government is paying special attention to creation and
augmentation of Rural Electricity Distribution Backbone and Village Electricity Infrastructure so as to
cover all the un-electrified villages and rural households in five years. Rural Electricity Supply
Technology Mission (REST) has been set up to oversee the implementation of schemes under AREP.
The Electricity Act, 2003 enacted with a progressive outlook has envisaged a provision of license-free
generation and distribution in the rural areas and regulation of power supply throughout the country.
The Rural Electrification Corporation Limited (REC)'s current mission is to facilitate availability of
electricity for accelerated growth and for enrichment of quality of life of rural and semi urban
population and to act as a competitive, client-friendly and development oriented organization for
financing and promoting projects covering power generation, power conservation, power transmission
and power distribution network in the country. Adequate and uninterrupted regular power supply will
augment the growth of small industries and enterprises in rural areas.
Telecommunication: The telecommunications services form the core area of infrastructure
development today with the thrust on e-governance up to district, tehsil and Gram Panchayat levels.
Telephones have become omnipresent with installation of more than 37000 electronic telephone
exchanges by the government.
The results have been dramatic. After decades of constraints, tele-density rose from 1.57 per 100
persons in 1991-2 to 4.4 in 2002 (including mobiles). The target for direct exchange lines in the Ninth
Plan was achieved. Capacity grew by 22% p.a. sufficient to sustain new telecoms-based industries
such as call centres - and costs fell. Contractual and regulatory constraints on the private sector were
eased in the light of experience. There is still a marked difference between rural and urban areas, with
tele-density being 1.14 in rural areas against 10.16 in urban. One third of villages have no phone lines.
Computerization of Land Reforms (CLR) was started as a centrally sponsored scheme in 1988-89 on a
pilot basis in eight districts in eight states to remove the problems inherent in the manual system of
maintenance and updating of land records and to meet the requirements of various groups of users
people, planners and administrators. The CLR scheme is extended to about 365 districts and 35 19
tehsils or taluks.
Scheme of Fund for Regeneration of Traditional Industries (SFURTI):
Government has recently launched the Scheme of Fund for Regeneration of Traditional Industries
(SFURTI) under which 100 traditional industry clusters (of khadi, village industry and coir) would be
taken up for comprehensive development over 5 years. The KVIC and the Coir Board are the nodal
agencies for the Scheme, which will be the first comprehensive initiative for regeneration of the khadi
and village industries sector, based on the cluster development methodology.
23
24
Planning
Planning is a process of setting goals and a suitable course of action for achieving the enterprise goals.
Planning is done at two levels: strategic and operational levels.
Strategic Planning: When an entrepreneur adopts a clear long-term goal with a clear vision and well
expressed and articulated mission statement for his enterprise, the entrepreneur is said to be practicing
strategic planning.
In the small-scale industries and rural enterprises, there is very limited scope to adopt systematic
planning and adherence to strategies. The management process is essentially adaptive in nature. Like
in medium and large-scale industries, they cannot afford to adopt a predictive management process,
which involves setting objectives, formulating policies, drawing up strategies to realize the set
objectives. However, a rural entrepreneur is advised to adopt a strategic planning process at least to set
long-term goals.
The small scale units with their need to adopt an adaptive process of management perhaps have to
depend on primary relationships like close friendships or kinship ties for their management functions.
Because of the adaptive nature of management, small-scale units do not permit professionalism to a
great extent.
Operational Planning:
Rural entrepreneurs usually adopt operational planning process in achieving their enterprises' shortterm goals. Since the daily activities related to enterprise are within their immediate control, the rural
entrepreneurs plan them well and also execute their plans quite satisfactorily. Since a rural
entrepreneur usually starts an enterprise for which he/she has quite adequate knowledge, skills, and
competencies, she successfully follows her/his daily operational plans in running the rural enterprise.
Decision-Making:
Usually every rural entrepreneur takes several decisions, on a regular basis, for handling daily
operations of production, assessing the sale volumes for production, assessing working capital
requirements, maintaining quality of\products or services, reducing costs, increasing profits, etc.
Appropriate decision-making is the hallmark of successful entrepreneurs. An element of risk taking
willingness of an entrepreneur plays a key role in taking right decisions. Usually the decisions taken
would prove to be right or wrong only after the results start coming and after assessing the
consequences.
Product Choice:
Entrepreneurs make several decisions about product choice. When an entrepreneur attempts to make a
difficult or complex product, say an electric mains switch, marketing it is relatively easier than the
items which can be easily produced. Running around marketing of simple and easy products
consumes more time and pays fewer dividends. Moreover, with difficult products in hand, the
entrepreneur can even monopolize the market, while with simple products he/she faces heavy
competition due to many players in the market.
25
Technology Choice:
Appropriate choice of technology plays a significant role in getting better product quality and market
share. A spice manufacturer had installed an imported machine that enabled him to powder the spices
at low temperatures so that the quality is not affected, which otherwise normally happens with the
indigenous machines because of heat generated in the grinding process. Costs may increase in such
cases but it is the quality of final product that gets an entrepreneur the money back.
Successful entrepreneurs usually end up taking decisions that yield desired results and may prove to
be right in retrospect. So, practicing appropriate decision-making in their enterprises may be one of
the reasons for their entrepreneurial success.
Organizing Production/Services
A rural entrepreneur needs to organize the production process or service operations for achieving
entrepreneurial success. So he/she starts installing the equipment and machinery, organizes space and
sets up the enterprise according to the project proposal.
Managing a rural enterprise involves looking after production processes to ensure quality control and
wastage reduction. So, technically trained entrepreneurs spend more time in close and direct
supervision of the production process. Those people who bad prior experience of working in a product
line also give special emphasis to production process. So, they assume that production is crucial part
of small-scale enterprises and feel that time devoted to .production never goes waste.
The entrepreneur-manager also takes care of raw material supplies and studies the raw material
market, explores for new dealers and spends a lot of time for getting better raw materials and
components for the enterprise. The organizing function of managing a rural enterprise evolves into an
expertise and specialized field for entrepreneurs because this is one area of enterprise control where
costs can be controlled.
Adequate experience and enough knowledge about all the raw material components required and their
sources to get them at competitive prices is another essential feature of successful management of an
enterprise. Getting to know the reliable supplier of raw materials does not happen in a day or two. It
involves many trials and tests and is quite painstaking. A good manager believes in simple truths: "No
pains, no gains!"
Staffing
An entrepreneur, in an attempt to launch a new enterprise, creates employment not only for himself
but also for many others - skilled as well as unskilled labour. The staff including workers, technicians,
mechanics, foremen, supervisors, managers, etc., is the most essential of all resources for running the
production process and realizing the dream project of the enterprise.
Recruiting and selecting the staff: This is most critical aspect for the entrepreneur who has to select
only those people who not only provide necessary skills and competencies for the enterprise and but
also share her/his dream, values, standards of excellence and quality products or services. But getting
the required people is always a difficult task for the entrepreneurs.
Managerial Staff: They usually take in a few of their own family members in management cadre for
many reasons, such as convenience, familiarity, understanding and being less risky. But the
26
experience has shown that this has yielded mixed results. In some cases, the relatives managed to
cooperate with each other, while in others, tensions caused even closure of the enterprises. Most of the
entrepreneurs depend on the primary relationships because they adopt an adaptive mode of
management, which may not allow for professionalism to a great extent.
Retired government officials or middle-aged persons offer their services for managerial jobs in small
industries, but usually prove to be misfits due to unrealistic expectations and mismatched performance
standards.
Most of the managerial staffs possess very little experience as the entrepreneurs of small-scale
industries find it difficult to attract experienced managerial personnel. They often learn their job
according to the exigencies without much prior practical training.
Due to shortage of management staff, it is imperative for the entrepreneur-owner to also handle other's
jobs to ensure that the work does not get held up in case someone is absent.
Managers have also to be recruited suiting their abilities and temperament. A good manager diagnoses
the problem objectively and does not get carried away by emotions and tempers. Similarly the capable
and competent supervisors and foremen on the shop floor make a great difference in production
performance and quality control.
Training the unskilled labour: Getting the skilled labour may become difficult as the better skilled
people may not opt for working in a rural industry. But the unskilled labour may take long time as
they learn everything on the job and through experience may acquire necessary skills. In such cases,
where skilled labour are hired from outside, they may soon quit for better opportunities elsewhere. So
when these people leave the enterprise, the lower level unskilled labour may take over operations with
mixed results.
In the process, the enterprise slows down and suffers.
The lower skilled or unskilled labour force are usually not provided any technical training for the fear
of losing them as they may leave for better options after acquiring the training. Adequate specialized
training needs to be given to the employed man power for running the machinery in order to develop
masters of some specific tasks. Employed staffs need to be observed critically for their competencies
and weaknesses and they need to be assigned tasks accordingly, and developed appropriately to
become experts in a particular field. Otherwise, the employee may become jack-of-all-trades but
master of none.
b. PRODUCTION MANAGEMENT FUNCTIONS
The production management functions include those functions in running the enterprise, such as
production management, arranging working capital for operating cycles, assessing the break-even
point, and marketing of products/services.
Production Management
Production management is the process of arranging and allocating work, men, money, and material
resources in such a structured manner to achieve the twin goals of an enterprise - reducing costs and
increasing profits. Once an enterprise is set up, i.e., once the entrepreneur has organized space,
27
machinery, equipment, and other fixed assets, and also recruited and selected required work force, she
would start production. She/he is ready and set to start operations of her/his enterprise.
The entrepreneur needs working capital for starting production. She tries to understand the operating
cycles of production assesses working capital requirements and sets about producing goods. So s/he
needs to understand operating cycle, Working capital, etc.
Then the new entrepreneur would make attempts at production, engages in trial production- and
adopts a pricing policy based on the costing of making the products
Working Capital: An entrepreneur needs finance for various operating expenses. She needs to buy raw
materials, consumables, packaging materials, etc., and needs money for salary and wages, rent,
premium and other services. So, in order to cover all these, expenses she would need money, which is
known as the working capital.
This money can be recovered once the entrepreneur sells the finished goods. Till that time, the funds
gets locked up in the production process. So, working capital can be defined as the amount of capital
perpetually locked up in the form of current assets viz. raw materials, work-in-progress, finished
goods, credit may lead to wrong decisions and result in a chaos in the enterprise, which tin be easily
avoided given and cash required to sustain a specified level of activity in terms of production and
sales.
To find out the requirement of working capital, one needs to understand the concept of operating
cycle.
Operating Cycle: One needs to buy and maintain the stock of raw materials for a certain minimum
period. This will depend upon various factors like nearness of the market, cost of procurement,
availability of the raw materials and their shelf life. The stocking period will vary from a day to even
5-6 months.
To convert the raw material into finished products will also take certain time. This will depend upon
the process involved and timely availability of all the needed resources.
Once the product is ready it has to reach the buyers and in return the sale proceeds are to be collected.
This also takes some time depending upon the demand and terms of sales.
The time taken for all the three stages above, i.e., the stocking period, production time and sales
realization time put together constitute an operating cycle of the business. The working capital is the
total funds required to meet all the expenses of one operating cycle.
Usually, the small entrepreneurs consider the production expenses only as working capital. They
neither consider the stocking period nor presume the sales realization time. So it is very important to
understand the concept of operating cycle and calculate the working capital required for the entire
period. And working capital is the sum total of all operating expenses for the period of one operating
cycle.
Working capital management is the most dynamic concept of financial management in an enterprise.
Effective working capital management would lead to:
a) Lower investment of finance in working capital for a given activity level.
28
29
An entrepreneur needs to understand the role of both these costs in fixing prices for finished goods.
While the direct costs for each product unit increase proportionately, the indirect costs will generally
decrease with increase in number of product units manufactured. Care should be taken to include the
costs incurred in production wastages, loss in handling and transit, customer rejections, after sales
service, loss in man-hours, transportation costs, distribution and sales costs, local taxes, etc., as these
directly affect the price of finished products. An entrepreneur-manager needs to calculate these costs
carefully in order to arrive at reasonable profits.
Pricing
The process of setting a price for the finished products poses a great challenge to a new entrepreneur.
Price of the products or services depends a great deal on the cost of doing business. The cost of sales
tells what to charge to stay in business. This is known as setting the floor price; or the minimum price.
The competition will set the ceiling price, or the maximum price. The entrepreneur needs to charge
enough for the product or services so that both fixed costs and variable costs will be covered by sales
and a small profit is also derived. If prices are set too high, it may not be possible to attract sufficient
business to cover fixed-costs; if prices are too low, the larger number of customers attracted may not
still generate enough revenue to cover all costs.
Break-even Analysis
A break-even analysis can and should be done to check the reasonableness of the prices fixed. Breakeven helps to take fixed costs and variable costs into account when fixing the prices. Initially, in the
first and second operating cycles of production, it may not be possible for the entrepreneur to breakeven but over time the entrepreneur moves beyond break-even point and starts making profits. It is
always better to reach break-even point sooner than later.
The break-even point is a valuable tool to analyze how much one needs to sell to make profits. If the
entrepreneur knows approximately how much they needs to sell, they can order the proper amounts of
stock of raw materials, produce, and find way to sell that much. Once these basic elements are
identified and estimated, one can calculate the break-even point.
Breakeven analysis determines the point at which sales revenues equal production costs. The breakeven point can also be defined in terms of physical units sold, or the level of capacity utilization at
which sales revenues and production costs match each other. So entrepreneurs always attempt to
utilize maximum capacity of their equipment, machinery and labour and reduce idle capacity
utilization.
Cash Flows Management
The new entrepreneurs need to know as to what amount of money has come in and how money has
gone out in a certain period. It will give them an idea whether the business is likely to yield profits and
enable them to realistically forecast money movements. The money movement into and out of
business is a matter to be controlled by the entrepreneur.
Cash flow refers to the actual movement of cash into and out of an enterprise. A cash flow statement is
prepared for a few years, and it is usually sub-divided into the cash movements on a monthly basis for
first two years and even on a daily basis in the initial stages.
30
Cash inflow from sales depends on the method of payment to be expected. This is because credit
trading has the effect of shifting cash flow into a later period than the date of actual sales. In cash
outflow the actual payment is considered, depending on the credit terms arranged with the material
suppliers, as this will allow payment some time after the delivery of raw material. If a business is to
keep out of trouble, it must have enough cash inflow to pay day-to-day expenses like wages, suppliers,
rent and electricity, etc.
Monitoring cash flows and ensuring smooth flow of cash forms one of the healthy practices of an
entrepreneur. A healthy cash flow and finance management would ensure healthy enterprise and
thereby entrepreneurial success.
Accounting and Book-keeping
Every new entrepreneur is advised to form a system of maintaining books of accounts and records
from inception. Recording all accounts regularly is a routine work that may be monotonous and boring
but its worth can only be seen in its absence. Absence of a system of accounting is one of the
important reasons of failure. Accounts are eyes of business and show the economic condition and
financial health of the business very clearly.
Book-keeping or maintaining a record of all accounts of the enterprise - the expenditure incurred, the
wages, the payments due and the overall income-expenditure-profit details help the entrepreneur to
assess the financial health and financial discipline of the enterprise.
If an entrepreneur is keeping all records of vouchers, bills, account slips, etc. in various cash books
and registers, then she is practicing book-keeping for her/his enterprise and also running the enterprise
in a systematic manner. Successful entrepreneurs resort to regular counting and book-keeping of their
enterprises which provides ready data on finances and may guide them in making appropriate
decisions and running their enterprises efficiently.
Balance Sheet: Balance Sheet describes the enterprise's financial condition at a given point in time, in
terms of its assets, liabilities and net worth. The successful entrepreneurs usually write their balance
sheets on a regular basis and may turn out to be good enterprise managers and hence achieve success
in their entrepreneurial ventures. The unsuccessful entrepreneurs, more often than not, do not prepare
any balance sheet whatsoever.
Income Statement: Income statement summarizes the enterprise's financial capability. An
entrepreneur, after all, works to earn an income from her/his enterprise. If she is not aware of how
much she had earned over a period of time, she is not in a position to decide whether to continue or
stop or change the course of action. Through an income statement, the entrepreneur will have a fair
idea of the operational costs, cost of products sold, administrative expenses; taxes and interests paid,
and the net income earned. The income statements of over; a period of years or cycles of production
will also help the entrepreneur to actually know whether there are incremental gains or losses in
her/his enterprise.
Effective financial management practices form the core of managing a rural enterprise. The rural
entrepreneurs need to grasp the intricacies of costing, pricing and breakeven analysis in order to attain
entrepreneurial success.
31
SOURCES OF FUNDS
Normally an entrepreneur tries to meet at least part of the funds requirement from ones own
sources, which we call as capital of the promoter. He/she arrange this fund either from
friends, family members or from own saving. In most cases it is founds that this funds is quit
insufficient to run the business. Therefore he approaches various agencies for meeting the
requirements.
The credit and landing agencies operating rural areas can be divided into two types:Institutional
Non- Institutional
The former comprise commercial banks, co-operative societies, development banks, regional
rural banks and non banking financial companies. These institution operate in regulated
environment and observe fixed norms & guidelines enumerated by the government. Since
they are more amenable to policy prescriptions of government authorities they have fixed
criteria on rate of interest, primary & collateral securities & selection procedures.
The non institutional agencies are lending agencies operating in non formal manner. They are
mostly money lenders operating in rural areas. They are only lending agencies before the
entry of institutional agencies. Rural people have easy access to these sources of finance, as
there are no Rules & regulations guiding their activities. They charge very high rate of
interest and many of them take away the entire property of the poor people which is pledge by
them for granting loans of even very small amount.
Institutional financial is of three types:Banking Institutional:- Commercial banks, co-operative societies, Regional Rural Bank.
Development banks:- Small industries development bank of India(SIDBI) , National Bank of
Agricultural and Rural Development Bank (NABARD), National Housing Bank (NHB)
Non banking financial companies
TYPES OF CREDIT FACILITIES AVAILABALE TO RURAL ENTREPRENEUR
Credit facilities can be fund based or non fund based. In case of non fund based facilities
bank do not lend funds directly. They issue Letter of Guarantee and letter of Credit (LC),
which are simply commitments on the part of the bank to pay for the borrower in case of
contingencies.
Fund based facilities are those where banks have to land funds directly. It include
Cash Credit (for Working capital Requirement)
Term Loan (for appearing Fixed Assets)
Bridge Loan (short term finance)
32
attention to all aspects of managing the enterprise. Moreover, she can easily diagnose what went
wrong and where. Time management also assumes significance as proper distribution of time
proportionately among all aspects of enterprise ensures success.
Many of the successful entrepreneurs, even though they delegate some specific works to supervisors
in their enterprises, are not entirely happy with the process of delegation. They would insist that the
responsibility still rests with them in ensuring the completion of some works and quality of
products/services. To give an example, the poultry farmers rarely delegated the technical tasks like
vaccination of birds at regular intervals as it involves high level of skill and its poor performance may
result in high losses. On the other hand, a low skill task with low risks like 'daily feeding of birds' was
often delegated to the workers.
Supervising
Supervision may be defined as the art of directing the effort or harnessing the energy of human
resources of the enterprise for the attainment of enterprise goals. Supervision involves directing,
delegating and controlling functions of a manager, Close and direct supervision is essential for
maintaining quality control.
Quality Control: Quality conscientiousness is another aspect that fetches more monetary returns.
Improving quality of products by redesigning and using better components is possible only when the
entrepreneur herself/himself spends adequate time with workers on shop floor, diagnosing problems
and immediately correcting them, and by getting directly involved in the manufacturing process.
To ensure quality, mid-way in the process of manufacturing various components, the entrepreneur
conducts various tests, because improper components may not be useful to assemble better final
products.
34
basic principles of financial management from their own mistakes. In the process, many of them bum
their fingers and get disheartened in the beginning.
Even if they know their job and business skills, they are not able to reflect upon the mistakes of the
past. Quite often in the absence of records, the access to formal credit facilities is also denied. So it is
important for them to learn and adopt the principles of financial management as well as maintain the
necessary records.
Managing cash flows poses a great challenge for the entrepreneurs. Delayed cash flow is a big pitfall
which may not be avoided by even the best of entrepreneurs. Similarly large gaps are seen in the
understanding the operating cycle and working capital requirements by the new entrepreneurs. An
effective manager-entrepreneur will take special care of cash flows in running one's enterprise.
36