50 years of Indian Entrepreneurship

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I ndians have always been entrepreneurial in nature, its just only recently that this word is being used so often. So it is no surprise that India celebrates 50 years of Indian Entrepreneurship. Dr.M.M.P.Akhouri, former Executive Director, National Institute for Entrepreneurship and Small Business Development (NIESBUD), speaks about the challenges entrepreneur have faced and the way to go ahead....

Dr.Akhouri noted the distinct phases in the history of entrepreneurship in India after the country's independence. Long years of domination had left severe scars on the Indian psyche evident in the Babu Culture that was growing in the governmental set up. 200 years of foreign yoke had wiped out independent mindset among the work force with no decision making ability whatsoever. In this background the thought leaders had to struggle to bring about an entrepreneurial attitude. (Figure 1 depicts the contribution of SMEs in the total export volume of the country over the decades)

Despite the arrival of independence, the early decade of 1950-60s marked a slow progress from an agrarian economy to an industrialised market. Industry was dominated by textile powerlooms in and around Bombay, Ahmedabad, Calcutta and Madras.

The 1960s saw the rapid expansion in large scale government sponsored heavy industry being set up across the country. Undermining the role that an individual enterprise can play in a country's economic growth, the government went ahead building state owned enterprises dependent on centralised planning. Based on the successful experience of the former Soviet Union, Indian policy makers concluded that, particularly for a poor country, centralised planning was essential for the efficient allocation of an economy's resources.

Numerous small scale industries (SSI) sprouted as ancillary units to cater to these large industries. But soon with a stagnating GDP in the 1960s and 1970s, around 30-40% of the SSIs turned sick. Amidst the gloom, one experiment in Andhra Pradesh stood out as a beacon. Prof.David McCleland conducted the renowned Kakinada Field Experiment in 1963, where many SSIs were thriving despite all odds.

In the 1970s , there was an intensive campaign to promote entrepreneurship among the Indian business community. This was the first effort to promote entrepreneurship in a concentrated manner. It was inspired by the fund raising campaign that happened during the second Indo-Pak War in 1965-66. Public contributed generously for the war fund with their personal savings and family jewellery. However, this entrepreneurship campaign failed to give similar results since the crucial issue of gestation period for a business venture was not considered. The policy implementers did not realize that business development in a region is a long term process and there is a huge need for follow up on each venture. 

In 1970, to increase foreign exchange earnings, Government of India designated exports as a priority sector for active government help and established, among other things, a duty drawback system, programmes of assistance for market development, and 100% export oriented units to help producers export. Finally, from the late 1970s through the mid-1980s, India liberalized imports such that those not subject to licensing as a proportion to total imports grew from five per cent in 1980-1981 to about 30% in 1987-1988. However, this partial removal of quantitative restrictions was accompanied by a steep rise in tariff rates.

The late 1980s marked the new beginning for the small and medium entrepreneurs in India with the new government choosing to move towards a market oriented economy. The economic crisis of the early 1990s resulted in economic reforms and a deliberate move towards globalization and liberalization of the Indian Economy. This shift brought in huge change in a SME unit's contribution to production and exports reflecting that the small scale industries have undergone substantial technical change in their production process.

With the youth facing the hardship of finding the right job in the public sector, human resource availability increased for the private sector. The youth who were increasingly disillusioned with the stagnation in government jobs, eagerly sought private sector jobs which assured them independence, growth and even stability in their career.

Country

No. of SMEs

Employment

GDP Value added ouput

Export Share

Brunei

98%

92%

66% of GDP

-

India

95%

80%of industrial sector

40% of industrial output

35%

Malaysia

80%

17.5%  of manufacturing sector

15% of total output; 17.6% of value added

15%

Pakistan

60%

80% of industrial labour force

15% of GDP

-

Philippines

99%

45%

28% of valued added in manufacturing

-

Singapore

97%

58% of manufacturing sector

41% of manufacturing output

16%

Thailand

90%

65% in industry

47% of manufacturing value added

10%

Vietnam

-

85% of labour force

65% of GDP

20%

Source: World Association for Small & Medium Enerprises, April 2004

Soon by the early 2000 , it was common to see young professionals preferring to become entrepreneurs and the least preferred career path was a stable government sector job.

With the dawn of the new service oriented economy, young professionals will increasingly work in the private sector and later choose to start a business of their own. With technology helping a SME in all possible ways, increasingly we will find professionals venturing into new business opportunities utilising easily accessible financial help. (Figure 2 shows the importance of Indian SMEs for the country's economy in comparison to other countries)

The Asian centre for Entrepreneurial Initiatives (ASCENT), a not-for-profit social enterprise committed to develop entrepreneurship, along with Max Planck Institute of Economics and the Indian Institute of Science recently organised the Sri Meda Kasturiranga Setty memorial lecture

Compiled by Levine Lawrence for Businessgyan

Issue BG80 Nov07