Why Choose Rural Entrepreneurship Over Urban?

Rural entrepreneurship involves establishing businesses in rural areas to combat challenges like poverty and unemployment. This comprehensive overview discusses its definition, significance, classification, benefits, and the various challenges faced by rural entrepreneurs, alongside government initiatives to promote industrialization and local economic growth.

Rural Entrepreneurship and Industrialization

Rural entrepreneurship encompasses the initiatives and activities undertaken by individuals to establish industrial and business units within rural areas. This form of entrepreneurship is viewed as a potential solution to pervasive rural challenges such as poverty, migration, economic disparity, unemployment, and underdevelopment.

By fostering rural entrepreneurial talent and promoting indigenous enterprises, it can enhance the economic value of rural areas through the introduction of new production methods, markets, and products, thereby generating employment and ensuring rural development. Essentially, entrepreneurship emerging in rural settings is synonymous with rural industrialization.

Rural Entrepreneurship – Short Meaning and Definition

• Meaning: Rural entrepreneurship is the process of starting and managing businesses in rural or village areas to promote local development.
• Definition: “Rural entrepreneurship” refers to entrepreneurial activities carried out in rural regions, focusing on using local resources, creating jobs, and improving living standards through small-scale industries, agriculture, or service-based ventures.

Defining Rural Industry

According to the Khadi and Village Industries Commission (KVIC), a “village industry or rural industry” is any industry in a rural area (with a population generally not exceeding 10,000, though this figure has been modified) that produces goods or renders services, with or without power, and where the fixed capital investment per artisan or worker does not exceed a specified limit (historically one thousand rupees, but recently updated).

The Government of India has since broadened the definition of a village industry to include any industry located in a rural area, village, or town with a population of 20,000 and below, and an investment in plant and machinery up to ₹3 crores. This expanded definition has added 41 new village industries to the category.

Village industries are typically categorized into six groups:

1. Mineral-based industries
2. Forest-based industries
3. Agro-based industries
4. Engineering and non-conventional industries
5. Textile industry (including Khadi)
6. Service industry

Rural entrepreneurs can establish their ventures in any of these categories, which include:

• Forest-based: Honey making, beedi making, bamboo and cane products, wood products, coir industry.
• Agro-based: Processing and sale of pickles, jaggery, juice, fruit jam, dairy products, rice-based products, and oil from oil seeds.
• Mineral-based: Stone crushing, cement industries, and making idols/decorative items from marble and granite.
• Textile: Weaving, spinning, and dyeing of clothes, including Khadi, tussar silk, and muga silk.
• Handicrafts: Decorative and household products made from cane, bamboo, and wood.
• Engineering: Making and repairing parts of agricultural equipment, tools, implements, and machinery parts.

Rationale for Rural Entrepreneurship

The promotion of rural entrepreneurship is crucial for national development, justified by the following key needs:

The Need to Address the Grim Socio-Economic Scenario

India’s vast rural population faces severe challenges:

• High Unemployment and Underemployment: Agriculture remains the primary source of employment, but the service and trade sectors are weak compared to urban areas. Chronic under-employment, especially for a single-crop dependent farming population, is widespread. It is estimated that over 10 crore people are without work, with the majority belonging to rural areas.
• Distressed Migration: Over-investment in mega-cities leads to the migration of unskilled poor villagers, shifting rural poverty to urban slums. This migration is driven by deprivation, not skill development, with most migrants ending up in tertiary, low-skill jobs.
• Threat to Artisanal Livelihoods: Highly skilled traditional artisans face threats due to a lack of organization, limited market access, and the competition from modern goods and market systems.
• Damage from Neglect of Rural Industrialization: The failure to foster adequate primary rural industrialization has resulted in deserted, underdeveloped villages while cities become overcrowded, uninhabitable, and unaffordable. This also reduces the purchasing power of both rural and urban populations.
• Low Productivity: The rural industrial sector is dominated by informal, traditional activities with low productivity. Technological intervention is slow, and the IT revolution has not significantly benefited the rural masses.

The Necessity for Promoting Entrepreneurship

These facts underscore the need to motivate latent enterprising initiatives among semi-literate youth, women, and the chronically unemployed who are neither fit for traditional jobs nor can be excluded from the economic mainstream. The entrepreneurial building approach must be integrated with the development process, focusing on practical and ground realities, including social and economic inputs, training, and functional support (credit, technology, markets).

The most effective solution to enhance rural purchasing power is the creation of vast, production-related economic activity directly controlled by rural entrepreneurs and artisans through thousands of viable tiny village industries. Historically, the village industries sector has the potential to generate 100 to 300 times more employment per unit of investment compared to the large-scale sector.

Policy Initiatives for Promotion

Organized efforts are essential for the survival and success of village industries. Desired policy initiatives include:

1. Creation of Entrepreneurial Environment: Promoting successful models like group entrepreneurship and self-help groups.
2. Market Linkages: Offering incentives for setting up regional marketing enterprises specifically for village industry products and networking them nationally.
3. National Brand Recognition: Making common national brands available to all tiny village industry units to overcome their individual inability to create a brand.
4. Reservation of Products: Reserving easy-to-make daily use products for village industries to provide them with a significant thrust.

Evolution of Rural Industrialization in India

Rural industrialization gained prominence only after India’s independence, as the British government previously discouraged indigenous industries.

• Initial Focus (1948 – 1956): The Industrial Policy Resolution of 1948 and 1956 emphasized the utilization of local resources, local self-sufficiency in consumer goods, employment generation, equitable distribution of incomes, and capital mobilization through cottage, village, and small industries.
• Five-Year Plans:
  • Third Plan: Focused on employment, increasing consumer and producer goods supply, and balanced regional development through village and small industries.
  • Fourth Plan: Introduced the Backward Area Development Programme.
  • Fifth Plan: Emphasized industrial development of backward/rural areas, leading to the establishment of District Industry Centres (DICs).
  • Sixth Plan: Redefined small-scale industry to be more broad-based.
  • Seventh and Eighth Plans: Assigned importance to institutions (KVIC, etc.) for marketing, credit, and technology, with a focus on food processing, pottery, leather, and garments.
  • Ninth Plan: Focused on incentives, factoring services, raising investment limits, technology promotion, and special attention to sericulture.

Benefits of Rural Entrepreneurship

Promoting rural entrepreneurship yields several significant benefits:

1. Reduction in Urban Migration: By creating wealth and opportunities locally, it lessens the pressure on people to move to overcrowded cities, thereby mitigating the breaking down of urban basic amenities and the growth of slums.
2. Improved Success of Rural Development Initiatives: Entrepreneurship acts as a tool to improve life and infrastructure, making it easier to implement government schemes and development initiatives successfully.
3. Enhanced Economic Conditions: Local consumption and increased returns on local produce lead to greater surplus income, which reduces poverty and unemployment rates.
4. Positive Contributor to National Growth: It can become a “second engine” for national development, increasing the contribution of rural markets to the nation’s GDP.
5. Social Reform: Increased wealth and access to education/awareness help break down social stigmas, dogmas, and superstitions.
6. Enhanced Domestic Consumption: Thriving domestic consumption reduces the dependency on exports and imports, contributing to environmental sustainability.

Classification of Rural Entrepreneurs

Rural entrepreneurs, who bring about change and add value in rural areas, can be broadly classified into:

1. Agricultural Entrepreneurs: Those whose main livelihood is farming or those willing to take up agriculture-aiding enterprises.
2. Micro Entrepreneurs: Entrepreneurs establishing micro-enterprises.
3. Small Business Entrepreneurs: Those running small businesses.
4. Rural Artisans: Skilled craftspeople (e.g., turner, potter, carpenter, blacksmith) whose skills are often inherited or acquired through training.
5. Farm Entrepreneurs: People whose primary occupation is farming.
6. Merchant and Trading Group: The rural business community, often perceived as middlemen.
7. Tribal Entrepreneurs: Entrepreneurs predominantly in tribal villages.
8. General Entrepreneurs: Including high school drop-outs, educated-unemployed, landless laborers, and persons from scheduled castes.

Problems and Challenges

Despite the immense potential, rural entrepreneurs face significant hurdles:

Problems of Rural Entrepreneurs

Rural entrepreneurs, mostly first-generation, struggle with:

1. Lack of Finance
2. Shortage of raw materials
3. Lack of market coverage
4. Lack of technical/managerial skills
5. Improper project planning
6. Shortage of power
7. Lack of transport/communication facilities
8. Lack of testing facilities
9. Lack of aptitude, necessary motivation, and business experience
10. Bureaucratic procedures and initial harassment
11. Ignorance of available facilities and incentives

Challenges of Rural Entrepreneurship

1. Government Policy: Policies often lack a deep understanding of the social and cultural aspects of rural markets, leading to ineffective execution of schemes despite increasing budget allocations.
2. Lack of Infrastructure and Basic Amenities: The absence of essential infrastructure (electricity, good roads, schools, hospitals) makes it difficult to attract and retain entrepreneurs and their families.
3. Lack of Ability to Scale Fundamental Industries: Many rural industries are person-dependent and created for local markets, limiting their scalability, which can discourage potential entrepreneurs.
4. Lack of Availability of Skilled Labour: The high rate of school dropouts and lack of vocational/skill development centers result in a shortage of skilled labor needed by rural industries.
5. Difficulties in Mindset, Belief, and Stigma: Overcoming ingrained wrong mindsets, superstitions, and past negative experiences requires increased awareness and education.

Measures to Encourage Rural Entrepreneurship

To stimulate rural entrepreneurship, a multi-pronged approach is necessary:

• Promoting and modernizing rural industries.
• Giving a fillip to rural artisans and widening rural business/trade.
• Upgrading rural skills and providing continuous supply of raw materials.
• Training rural entrepreneurs and instilling self-confidence.
• Ensuring adequate and timely finance.
• Exploring new domestic and international markets.
• Simplifying licensing provisions.
• Feeding them with new product ideas through market research.
• Popularizing products through fairs and exhibitions and establishing common marketing complexes.

Government Strategies and Schemes

The government plays a lead role in promoting rural entrepreneurship through various strategies and schemes:

Strategies

• Promotion of Rural Industry: Providing significant tax benefits and similar promotions for agro-based and non-agro-based industries as for IT and exports.
• Increasing Access to Capital: Re-evaluating the effectiveness of subsidies and capital allocation to farmers to ensure viability and reduce reliance on middlemen.
• Creation of Effective Policies: Formulating and implementing policies for rural markets with input from diverse experts who understand the ground realities.
• Access to Professional Help: Creating a pool of experts for technology transfer, best practices, business issues, and marketing support at a low cost.
• Infrastructural Connectivity: Ensuring connectivity between villages, cities, and towns to facilitate quick and timely transport of produce, especially perishable goods.
• Enhance Rural Consumption: Increasing the income of rural families through fair procurement policies (e.g., ITC’s e-choupal scheme) to boost their purchasing power.
• Improving Education and Skill Development Infrastructure: Enhancing schools and vocational/skill development programs.

Schemes

• Scheme of Fund for Regeneration of Traditional Industries (SFURTI): A comprehensive cluster development approach subsuming earlier programs like NPRI.
• Rural Employment Generation Programme (REGP): Implemented by KVIC, it covers viable village industries by providing margin money support.
• Rural Industrialization Programme: Covers Non-Farm Sector (NFS) activities in rural and semi-urban areas, providing financial support and incentives. NABARD provides refinance for investment in agro-industries, sericulture, and marketing.
• Training of Rural Youth for Self-Employment (TRYSEM): (Merged into SGSY) Aimed at providing technical and entrepreneurial skills to rural poor.
• Swarnjayanti Gram Swarozgar Yojana (SGSY): Aims to lift poor families above the poverty line by organizing them into Self Help Groups (SHGs) and providing income-generating assets.
• Council for Advancement of People’s Action and Rural Technology (CAPART): A nodal agency coordinating partnerships between voluntary organizations and the Government for rural sustainable development.