CHAPTER 1

INTRODUCTION

The economic development of any country is dependable on accumulation and

availability of resources like human, land, capital and innovative technology. The
relatively higher growth of population has led to increase in the volume of
unemployment and under employment. Due to recession, fluctuation in international
trade and high unemployment, the interest of industrialized countries are constantly
suffering. To sustain increasing demand and to generate employment opportunities
there is a need of entrepreneur, who bring something new with his ability, can utilize
and initiate economic opportunity. The process of integrating resources to create value
and utility to end users is known as entrepreneurship.

Entrepreneurship is multidimensional and evolving concept consisting of economic,

psychological, sociological, political and management perspectives. The basic element
of entrepreneurship is to pick-out opportunities, utility creation and mobilization of
resources. Entrepreneurship is defined as pre-start, start-up and post-start-up phase of
entrepreneurial process with the prime objective of inspiring people to start the
business. Due to interest shown by governments all over the world the entrepreneurship
policy is attracting, encouraging and retaining entrepreneurs for socio-economic
benefits.

In India entrepreneurs are guided by industries policy resolution of 1948 and 1956 and
Industrial Act 1951. The government of India emphasized on promotion of small scale
industries and small entrepreneurs from the year 1975. To encourage small enterprises a
comprehensive assistance from the government was given in the form of import
substitution, credit facility, hire purchase facility and reserved certain items only to be
produce by small scale industries. Many organisations such as DIC (District Industries
Centre) SISI (Small Industries Service Institute) SIDO (Small Industries Development
Organisation) KVIC (Khadi and Village Industrial Commission) and SIDF (Small
Industries Development Fund) were set by the government to promote small
enterprises. Entrepreneurship activity is a primary responsibility of Ministry of Skill
Development and Entrepreneurship but the policies and guidelines are covered by

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various ministries like Ministry of Human Resource Development deals with education
component, Ministry of Women and Child Welfare deals with women empowerment,
Ministry of Industry and Commerce deals with manufacturing sector, Ministry of
Textile deals with entrepreneurship in field of textile, Ministry of Information
Technology deals in information technology, Ministry of Biotechnology deals in
biotechnology industry and Ministry of MSME deals with entrepreneurship policy
governing MSME organizations.

In re-designing the fortune of any nation entrepreneur play a critical role. Drucker Peter
F. (2006) “An entrepreneur is the one who always search for change, responds to it and
exploits it as an opportunity. Innovation is the specific tool of entrepreneurs, that means
by which they exploit changes as an opportunity for a different business or different
service”. The entrepreneurship is an admissible instrument which encourage economic
growth in different regional and national economies because the growth in
entrepreneurial activities will help in creating of more jobs and minimizing of
unemployment.

It is often seen that the term “entrepreneurship” is synonymously used with

“entrepreneurs” but conceptually both are different. The task performed by
entrepreneurs is entrepreneurship. Entrepreneur and entrepreneurship can be
distinguished as:

Entrepreneur Entrepreneurship

• It means a person It means a process

• Is a decision maker Is a decision

• Is an innovator Is an innovation

• Is a leader Is a Leadership

• A risk taker A risk taking

• A motivator Motivation

In today‟s era of globalization entrepreneurs are facing a lot of challenges. The

psychological and sociological issues related to recognition of growth and opportunities

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in business are playing significant role in the lives of entrepreneurs. There are certain
psychological and sociological factors which have considerable impact on small scale
entrepreneurs. The willingness of entrepreneurial spirit is caused by psychological and
sociological factors such as personality, recognition, perception, attitude, innovation,
aspiration, motivation, goals, achievement, self-confidence, values, culture, beliefs,
caste, education, occupation, family background etc. The entrepreneurship from a
psychologist point can be viewed as the centre of attention on personality, perception
and attitude whereas sociological view entrepreneurship as function of some distinct
communities, culture, caste, groups, activities, life style and social values that influence
the degree of entrepreneurship. It is important to understand how these factors
influence, affects and motivate small scale entrepreneurs in starting, establishing and
growing of their business.

1.1 Entrepreneur

The word is driven from the French word „entreprendre,‟ in 17th century which means
„to undertake‟ (Bhargava 2006).

The Cambridge advance dictionary defines „entrepreneur as someone who starts their
own business, especially when this involves seeing a new opportunity‟. According to
Schumpeter J.A (1965) “individual who exploit market opportunity through technical
and/or organizational innovation”.

Entrepreneur is the organiser who combines land, labour and capital to produce a
product. A French economist J.B. Say defines “an entrepreneur as economic agent who
unites all means of production land of one, the labour of another and the capital of yet
another and thus produces a product. By selling the product in the market he pays rent
of land, wages to labour, interest on capital and what remains is his profit”.

Entrepreneur is a person who is the owner of the business and brings idea to create new
business or revive and grow existing business by analysing critically, by thinking,
inventing new ways to accomplish the gap of product and service and is also responsible
for bearing risk and loss. Entrepreneurs are role model for the society sincethey works
for welfare of society by raising the standard of people, help in upliftment of

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the society by innovative ideas and also finds the best and critical solutions for rational
problems. Sometimes an entrepreneur plays the role of a manager by holding
opportunities to create utilities through new product for new market and by supply of
resources that are needed most by the society.

The entrepreneurs can be categorized into different types such as Innovative, Fabian
(cautious in risk taking and explores unexplored fields) Adoptive and Imitative (find
there market in less developed countries) and Drone (use old technology). The functions
associated with entrepreneurs are management and control, political administration,
exchange relationship and technological. Entrepreneurs plays important role in economic
development of any economy by creating of employment opportunities, balance regional
growth, wealth creation and distribution, capital formulation, improve standard of living,
promotes export and brings social change in the society. So entrepreneur is an individual
who creates a business, bears risk, enjoy rewards, combines land, labour and capital to
manufacture goods and works for the betterment of society.

The question is, what makes someone to be an entrepreneur and the answer is, there are
many reasons to become entrepreneur which are as:

• Vision: How to inspire people to join business.

• Innovation: The way to do business or to develop new product and services.

• Dedication/ Passion: It motivates to work hard.

• Motivation: Determines strong desire to achieve success.

• Leadership: It is an ability to set goals and create rule.

• Self-confidence: Helps in reducing uncertainty and risk.

• Opportunity: Setting of new organisation and providing employment opportunities.

• Effective Management: Delegation of work and establishing strong network in

day to day business activities

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1.2 Entrepreneurship

The emergence of entrepreneurship in society depends on social, economic, religious,

cultural, political, psychological and environmental factors prevailing in the society. It
is an individual action of putting ideas into reality by identifying and exploiting
opportunities in the market for long term gains. The concept of entrepreneurship is very
vast, it has been explained by number of thinkers in psychological, sociological,
managerial, political and economic context. The theory of entrepreneurship is
developed by number of academicians, researchers and thinker like McClelland,
Schumpeter, Max Weber, Drucker, Hagen and Cochran.

The conception of entrepreneurship is very old because it came into view around in
1770‟s. It was seen that the interest in entrepreneurship has been growing around the
world from the beginning of 1980‟s. As per business dictionary entrepreneurship means
„the capacity and willingness to develop, organise and manage a business venture
along with any of its risk in order to make a profit‟.

The first person to define entrepreneurship in 1725 was an Irish economist Richard
Cantillon “a risk taker looking to sustain equilibrium between demand and supply.”

The modern scientific definition of entrepreneurship was given by Professor Joseph

Schumpeter, an Austrian political economist probably the first scholar to theorize
entrepreneurship in 1942 in the book “Capitalism, Socialism and Democracy”
according to Schumpeter the soul of entrepreneurship “lies in the identification and
implementation of new opportunities.”

According to Howard Stevenson‟s (1983) “Entrepreneurship is the process by which

individuals pursue opportunities without regard to the resources they currently control.”

The procedures by which entrepreneur produce value, product and service is known as
entrepreneurship. It is dynamic in nature with certain set of functions which help in
activities like identification of resources and opportunities, demand and supply, risk-
taking, management, innovation, creativity and mobilisation of resources.

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According to Onuoha G. (2007) “Entrepreneurship is the practice of starting new
organizations or revitalizing mature organisations, particularly new business generally
in response to identified opportunities.”

The factors vitalizing entrepreneurship can be divided into two parts internal factors and
external factors. Internal factors focus on entrepreneurial ambition, experience, self-
reliance and success whereas external factors arise outside enterprise such as social,
political, technological and economic factors. These internal and external factors are
affected by number of barriers like social, economic, individual barriers and adverse
condition. For economic growth, it is the duty of individual, groups and state to remove
barriers and stimulate entrepreneurial growth.

The elements of entrepreneurship are identification of opportunity, creation of value

and mobilization of resources on which the success of any venture rely on. The
determinant factors for success of entrepreneurship are availability of finance,
regulatory framework, accessible market, capability and entrepreneurial culture. There
are less number of local entrepreneurs in India, to encourage them the government of
India has set up Ministry of Skill Development and Entrepreneurship on 9th November
2014 to co-ordinate all skill development efforts of the country. The National policy
framework strategy was proposed by Ministry of skill development and entrepreneurship
in 2015, which consist of:

1. Educate and equip potential and early stage entrepreneurs across India

2. Connect entrepreneurs to peer, mentor and incubators

3. Support entrepreneurs through Entrepreneurship Hubs

4. Catalyse a culture shift to encourage entrepreneurship

5. Encourage entrepreneurship among under-represented group

6. Promote entrepreneurship among women

7. Improve ease of doing business

8. Improve access to finance

9. Foster social entrepreneurship and grassroots innovation

(Source: www.msde.gov.in)

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Due to continuous effort and support from government the research and development in
entrepreneurship has increased. As per economic survey 2021 which focus on research
and development India ranked 48th in “The Global Innovation Index 2021”.

1.3 Small Scale Industries and Small Entrepreneurs

Small business occupies special place in developing country like India. SSI are those
industries which are manufacturing, producing and rendering services on small or micro
scale basis. The labour in India is abundant and capital is scarce and small scale industries
tend more to be labour intensive, so these types of industries are best suited to country.
The Small Scale Industries push growth in rural and urban areas by using skilled labour
and has direct impact on poverty alleviation. In India Micro, Small and Medium
enterprises sector accounts for about 45 per cent of manufacturing output and 40 per cent
of the total export of the country. Small Scale industries are suitable in developing and
less developed countries because of low investment and abundance of labour. Small scale
industries are engaged in production of handicraft and highly sophisticated goods by
utilizing local labour and skills that is why these industries are also called seedbed of
entrepreneurship. These small scale industries are also considered as the employment
providers and are also important sector of economy from social to financial point of view.

The first Industrial policy was announced after independence in 1948 which identifies
the role of cottage and small scale industries. After experiencing the first five year plan
second Industrial Policy Resolution 1956 was announced which stressed on role of
cottage and small scale industries for generating employment by using local manpower
and reducing regional inequalities in industrial development. Third industrial policy
was announced in the year 1977 and the focussed area was promotion of cottage and
small industries of rural areas and small towns. Fourth industrial policy was introduced
in the year 1980 to promote concept of economic federation, basically to raise the
efficiency of public sector. In 1991the government decided to support these industries
through tax concession and subsidies. New small enterprises policy 1991 (Economic
reform of 1991) was replaced by policy of promotion from policy of protection. The
aim of this policy was to free the economy (Indian) from bureaucratic control and merge
it with the world economy (Liberalization). In 2000 for SSI the new bunch of

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policies were announced which includes support to credit, fiscal, infrastructure,
technological, marketing etc. and sleek rules and regulations for development of
entrepreneurship. In December 2018 government felt the need to introduce new
industrial policy but due to Covid-19 the government in May 2020 provide relief
measures for industries under Atamnirbhar Bharat economic package.

Characteristics of Small Scale Entrepreneurs

The successful entrepreneur must possess the following characteristics:

• Optimists: Entrepreneur are optimists in decision making and they have positive
hope for future.

• Independent: Most of the entrepreneurs lead from front, they are tough and
pragmatic people.

• Risk-bearing: Entrepreneurs have aptitude for taking risk.

• Flexible: The entrepreneurs are always ready for changing situations.

• Efficiency: Entrepreneurs believe in optimum utilization of resources, time and

effort.

• Innovators: They continuously put their energies in introduction of new products,

new methods and search new markets.

• Leadership: The entrepreneur motivates the group to achieve the goal.

• Hard-working: Entrepreneurs work for long hours to fulfil the commitments

made to his clients.

• Self-confidence: Self-confidence adds credibility to his plans as they are

responsible to their own decision.

• Ability to Mobilize Resources: Entrepreneurs must have ability to utilize

resources so that end product should be obtained.

1.4 Micro, Small and Medium Enterprises Development (MSMED)

In India MSME play important role in socio-economic development of economy. There

are 6.34 crore MEMEs in India and around 51 percent of them are in rural India. (As

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per annual report of MSMEs 2018-19). This sector has a big advantage due to low
capital requirement, high employment generation and utilization of local level available
resources. After the liberalization policy of 1991 economic growth become really
meaningful with the participation of people. The real challenge is to provide
employment and MSME sector has emerged as vibrant sector of Indian economy. The
Government of India enacted MSMED Act, 2006 on June 16th the first licit structure for
identification of „enterprise‟ which was notified on October 2nd 2006. The aim of the act
was to convey greater spirit and growth in terms of output, employment and technology.
At the same time a legal framework was made to remove barriers in trade and
competition. The Industries Act, 1951 (Development and regulation) had classified
micro, small and medium enterprises in two classes in its first schedule. They are
manufacturing enterprises and service enterprises. The manufacturing enterprise is
defined in terms of investment in plant and machinery and the service enterprise is
defined in terms of investment in equipment.

Table 1.4.1: Classification of Micro, Small & Medium Industries

Nature of Activity Investment in plant and machinery Investment in equipment for

(Manufacturing or Production) enterprise (Service)

Micro Not exceeding Rs.25 lakhs Not exceeding Rs.10 lakhs

Small More than Rs.25 lakhs but not More than Rs.10 lakhs but not
exceeding Rs.5 crores exceeding Rs.2 crores

Medium More than Rs.5 crore but not More than Rs.2 crore but not
exceeding Rs.10 crore exceeding Rs.5 crores

Source: http://www.msme.nic.in

The institutional framework that provides financial assistance to MSME sector are
Reserve Bank of India, SIDBI, IDBI, EXIM, NABARD, NCDC, Commercial Banks,
SFCs, Co-operative Banks, RRBs, Credit Guarantee Schemes, NSIC, SSIDC, KVIC etc.

MSME has set up three “Entrepreneurship Development Institutes (EDIs)” for training
and development of micro and small enterprises. These are:-

a) Indian Institute of Entrepreneurship (IIE) Guwahati,

b) National Institute of Entrepreneurship and Small Business Development

(NIESBUD) Noida

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c) National Institute for Micro, Small and Medium Enterprises (NI-MSME)
Hyderabad.

The main objective of these institutions are promotion of entrepreneurship, creating

self-employment through enterprise creation, creating of training infrastructure and to
supporting research related issues in entrepreneurship.

Initiatives of MSME Ministry for promoting small scale industries are as:-

• ASPIRE: A Scheme for Promoting Innovation and Rural Entrepreneurship

• CUY: Coir Udyami Yojana

• CVY: Coir Vikas Yojana

• ESDP: Entrepreneurship Skill and Development Programme

• KVIC: Khadi and Village Industries Commission

• IDP: Infrastructure Development Programme

• MPS: Marketing Promotion Scheme

• NSIC: National Small Industries Corporation

• PMEGP: Prime Minister‟s Employment Generation Programme

• SFURTI: Scheme of Fund for Regeneration of Traditional Industries

• TUQC: Technology upgradation and Quality Certification

Source: http://msme.gov.in

These initiatives of MSME Ministry clearly defines the role of small enterprises and
also consolidates the efforts of government to provide support for their growth.

Table 1.4.2: Registered MSMEs in India

Activity Number of Registered Enterprises

Micro 43,18,841

Small 5,00,942

Medium 19,766

Source: Press Information Bureau, Government of India. Ministry of MSME

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 Due to continuous efforts from government the MSME is able to register more than 48
lakh entrepreneurs in India till 18th July 2018.

The small scale entrepreneurs play a formidable role in economic development of the
country as they provide maximum employment after agriculture and also balanced
regional development. These entrepreneurs are considered as the most significant
economic agent in enhancement of economic development of a nation as they require
low capital investment, act as owners, innovators, risk takers, producers, decision and
market makers. Small scale entrepreneurs are the people who owns small business with
small number of workers and do not have high volume of sales, they are predominantly
privately owned and operated, they are sole proprietorships, corporations and
partnerships and play vital role in economic development of the country. To encourage
people to start their own business the centre and state governments are making
considerable efforts. Various schemes, financial facilities, loans, skill development and
trainings facilities are provided by government. As a result number of entrepreneurs get
registered themselves in MSMES.

Table 1.4.3: State-wise analysis of MSMEs in India

Name of State Registered MSMES

Bihar 7,70,871
Uttar Pradesh 5,96,036
Delhi 5,88,483
Maharashtra 5,70,101
Gujrat 4,86,080

Source: PIB, Govt. of India, New Delhi, 18th July 2018.

Central and State Level Institutions that Support Small Scale Industries and Small Entrepreneurs

A. Central Level
i) Small scale Industrial Board
ii) Small Industrial Development Organisation
iii) Small Scale Service Institute

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 iv) Entrepreneurship Development Institute of India
v) National Institute for Entrepreneurship and Small Business Development
vi) National Institute of Small Industry Extension and Training
vii) National Small Industries Corporation Ltd.
viii) National Productivity Council
ix) Indian Institute of Entrepreneurship

B. State Level

i) Directorate of Industries
ii) District Industrial Centres
iii) State Financing Corporations
iv) State Industrial Development/Investment Corporation
v) State Small Industrial Development Corporations

C. Other Agencies

i) National Bank for Agriculture and Rural Development

ii) Non-governmental Organisations
iii) Small Industries Development Bank of India
iv) Export Promotion Councils
v) Micro Units Development and Refinancing Agencies

Role of District Industries Centre

The District Industries centres (DICs) provides assistance and support to all industries
in district level. The DICs was started on 1st April 1978 with the objective of providing
administrative framework at district level for promotion of small scale entrepreneurs in
rural areas. It is also known as single window interacting agency at district level to
support and provide service to small entrepreneurs under single roof. DICs help in
registration of small scale small entrepreneurs in multi-region and also takes
responsibility of promoting cottage and small industries. The Pradhan Mantri Rozgar
Yogana (PMRY) is also implemented by DICs.

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The main objective of DICs are:-

• To identify new entrepreneurs

• To provide assistance regarding their own start-ups

• To provide financial assistance

• To develop rural handicraft and industrialization

• To make aware of various government schemes to new entrepreneurs

• To give necessary facilities under one roof.

Khadi and Village Industries Commission

KVIC is a statute body under the Ministry of MSME formed under KVIC Act 1956. It
is a programme for upliftment of rural people and to provide them employment.
KVICPMEGP was replaced by Rural Employment Generation Programme and Pradhan
Mantri Rozgar Yojana.

KVIC loan features as per PMEGP guidelines.

1) Amount of loan
a) Manufacturing section- Highest Rs. 25 Lakh
b) Business and Service section- Highest Rs. 10 Lakh
2) Per capita Investment limit

a) Plains-Rs. 1 lakh
b) Hills-Rs. 1.5 lakh
3) Funding Model- Includes minorities, women, reserved, ex-serviceman, disabled
and northeast border areas.

4) Rate and Subsidy

Category Urban Rural

General 15% 25%
Special 25% 35%

Source: www.kvic.gov.in

5) Loan Term- 3 to 7 years including moratorium 6 months.

6) Income ceiling- No income ceiling in KVIC loan.

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7) Interest Applicable- 11% to 12% by most of the banks.

1.5 COVID-19 and Long Term Strategy for Sustainability of MSMEs.

COVID-19 is a humanitarian crises, as many families, business and industries all over
the world have suffered. It has an impact on political, social and economic environment
of the world. Due to pandemic caused by COVID-19 the Indian government decided for
a lockdown in whole country from 24th March 2020. This lockdown has affected every
sector of countries economy. Prime minister Shri Narender Modi in his address to
nation on 12th May 2020 announced financial stimulus package of 20 lakh crore to deal
with COVID-19. Union Finance Minister Nirmala Sitharaman announced some detail
of Atmanirbhar Bharat Abhiyan economic package on 13th May 2020 which includes
Rs 3 lakh crore collateral free loan schemes for micro, small and medium enterprises.
The aim of the economic package was to provide relief to micro, small and medium
enterprises in the form of massive increase in credit guarantees. The credit guarantees
means the loan will be paid by government in case of MSME falters. Although
government is continuously making efforts to provide relief measures to MSMEs but in
providing the relief measures the MSME will face a different type of problem.

• The first most serious problem is many of the small entrepreneurs are not
registered anywhere, they do not maintain accounts and pay no taxes, because the
relief measures are for those who are registered so it is a constraint for government
to help the unregistered entrepreneurs.

• The second problem is lack of finance because MSME funding comes from
informal sources.

• Third is Lack of availability of labour. Due to lockdown labours are migrated to

their villages.

To create five crore job opportunities in MSME sector the government had revised the
old definition given by Ministry of Micro, Small and Medium Enterprise in terms of
investment in plant and machinery or equipment (14th May 2020) after the
announcement of financial package. The another reason behind revised definition was
to revive MEMEs which were badly affected by COVID-19 pandemic and also to

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 provide employment to those labours who had been migrated to their respective villages
from the cities.

Table 1.5.1: MSMEs Revised Definition

Investment in Plant and Machinery Investment in equipment for

Nature of Activity
(Manufacturing or Production) enterprise (Service)

Micro Investment < Rs. 1 Crore Turnover < Rs. 5 Crore

Small Investment < Rs. 10 Crore Turnover < Rs. 50 Crore

Medium Investment < Rs.20 Crore Turnover < Rs. 100 Crore

Source: www.msme.gov.in

Long-term strategies made by Ministry of MSME for sustainability of MSMEs, due to pandemic caused by
COVID-19

• Smart Industrial Village policy- The aim of this policy is to achieve inclusive
and equitable growth with percolation of wealth and to promote de-centralised
economic structure to avoid concentration of population

• Promoting “Swadeshi” Ideology by strategy and policy- It means promoting

Swadeshi by price advantage incentive for import substitution and indigenous
product development, price advantage incentive to Indian supplier compared with
the cost of import, defining and introduction of Indian Quality Standard and
Certification, to provide non-tariff barriers, to stimulate local investment in
manufacturing segment.

• Access to information technology enabled services- To bring MSME sector on

level of playing with bigger players, the government encouraged for
corporatisation of MSME sector and technology upgradation.

• Innovation and upscale MSMEs- To withstand global competition and setting

of large number of business incubators in educational institutions and formulation
of long term policies for timely receipt of payments by MSMEs.

• Financial Assistance- Collateral free and MUDRA small loan to encourage self-
employment, prioritize lending to MSMEs from banks and relaxing ceiling on
working capitals by banks.

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1.6 Entrepreneurship in the State of Himachal Pradesh

Himachal Pradesh is one of the states of India which has rapidly transformed from the
backward part of the country to advance state. It is a land of spirited entrepreneurial
culture. On 18th December 1970 the state of Himachal Pradesh Act was passed by
parliament and the state came into being on 25th January 1971 as eighteenth state of
Indian Union with 12 districts. Total population of state is 68,64,602 as per census 2011
and about 90 percent of the state‟s population lives in rural areas. It is a home to Asia‟s
largest pharmaceuticals hub, accounts for 26 percent of total hydropower potential of
India, second largest producer of apple and almonds in India and has highest growth in
the number of technical institution in last four years. As per capita income the state
presently ranks fourth in India. The main occupation of people of Himachal is agriculture,
besides agriculture there are many small business opportunities in the state like
handicraft, handloom, fruit processing, tourism, waste management and recycling,
horticulture, floriculture, dairy farming, medicinal plants, honey processing and many
more which offers several business opportunities to small scale entrepreneurs. Himachal
Pradesh has made significant achievement in field of small, medium and large scale
industries in past few years. Self-employment and entrepreneurship is encouraged in the
state of Himachal for creating sustainable development and generation of economic
growth. The state also provides support to „start-up‟ and „innovative project‟ so that the
educated youth can become job creator rather than job seekers. The reason behind
increasing of entrepreneurial activity in the state is due to availability of skilled
workforce, positive attitude of state government and the best part is that the state offers
peaceful industrial environment. The state is known for negligible number of sticks
lockouts and labour unrest. Industrialization has made significant progress in last few
years, it is a home of 55456 micro, small, medium and large industrial units with
investment of about Rs. 52089.73 crores and provides employment to approximate
463151 lakh peoples.

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 Table 1.6.1: Number of enterprises established (till Jan.2020)

No. of Units Investment (in cr.) Employment

55496 52089.73 463151

Source: emerginghimachal.hp.gov.in

The main focused sectors of the government of Himachal Pradesh are:-

• Agri and Food Processing

• Pharmaceuticals

• Tourism

• Hydro and Renewable Energy

• Wellness, Healthcare and Ayush

• Housing and Urban Development

• Information Technology

• Education and Skill Development

• Biotechnology

• Textile

• Livestock

The main objective behind entrepreneurial development in the state is, to create
conducive conditions for emergence of opportunity driven entrepreneurs, to develop
entrepreneurial culture and values in people, to aware benefits of being self-employed,
promotion of social entrepreneurship, provision of support to emerging entrepreneurs
through training, mentoring, information and how to access finance. To encourage the
people to start their own businesses, various training programmes, skill development
programmes and awareness programmes are organised by state government, so that
entrepreneurial culture can be developed among the people. The government
educational institution promoting entrepreneurship in state are CEI (Centre for

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entrepreneurship and Innovation) and MSME-DI (Micro Small and Medium enterprise
development Institute).

Table 1.6.2: Analysis of Micro and Small enterprises in H.P.

District No. of Units Investment (Lakh) Employment

Bilaspur 2402 8294 8643
Chamba 1809 4095 6316
Hamirpur 2929 7810 10508
Kangra 9210 37821 40927
Kullu 2621 8652 14497
Kinnaur 597 737 1886
Lahul & Spiti 590 374 1637
Mandi 4050 12593 16752
Shimla 3562 9092 12597
Solan 5331 434690 69492
Sirmour 3304 125378 22531
Una 3522 51197 18019
Total 39927 700733 223805
Source: Directorate of Industries Himachal Pradesh

The above table shows the total number of Micro and Small Scale units in 12 district of
Himachal Pradesh are 39927 with total investment of 700733 lakhs and the number of
employment provided by these units are 223805.

Table 1.6.3: MSMEs Growth in H.P. from 2005 to 2015 an Analysis

Year Units (Nos.) Investment (Lakh) Employment(Nos.)

2005-2006 914 12117.3 6611
2006-2007 952 45272.78 10665
2007-2008 842 70637.33 11302
2008-2009 909 73795.48 10939
2009-2010 1032 75320.01 10011
2010-2011 963 96539.36 10002
2011-2012 856 61909.00 7732
2012-2013 798 96332.00 9298
2013-2014 630 37419.00 5230
2014-2015 (up to 31-12-14) 279 47713.00 1963
Source: Directorate of Industries, Himachal Pradesh

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The above table shows increase of registration in Micro and Small Units in the year
2009-2010. The maximum investment was in the year 2010-2011, whereas maximum
employment in numbers was in the year 2007-2008. These big changes in case of units,
investment and employment from 2005-2015 are due to special packages of incentive
given by Central Government to State Government.

1.7 Categorisation of Entrepreneurship

The emergence of entrepreneurship is not spontaneous, it is a dependent phenomenon

of various factors that support the entrepreneurial development. The entrepreneurship
can be categories on the basis of these dependent factors like:-

• Economic factor

• Management factor

• Political factor

• Sociological factor

• Psychological factor

1. Economic Factor

Economic factor means the factors which promotes economic development and
accounts for emergence of entrepreneurship. It has immediate and most direct impact
on entrepreneurship. It comprise of capital, labour, raw-material, market and
infrastructure.

Capital: Capital is a perquisites to establish any enterprise, as it facilitates and bring all
economic activities together such as land, labour, man, material and money. Increase in
investment leads to increase in profit and profit leads to capital formation. So when
there is an increase in capital there is an increase in entrepreneurship.

Labour: Entrepreneurship is encouraged when there is flexible labour force. The easy
availability and quantity of labour force effects and influence the emergence of
entrepreneurship.

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Raw-material: Raw material is an important factor because in absence of it neither an
entrepreneur can be emerged and nor any enterprise can be established. It is one of the
basic requirement of production which is directly related to entrepreneurship and in
absence of this entrepreneurship is adversely affected.

Market: In present modern competitive world the role and importance of market shows
the growth of entrepreneurship. In absence of latest market knowledge and marketing
technology no entrepreneur can survive. So size and composition of market influence
entrepreneurship.

Infrastructure: Infrastructure enhance connectivity and linkage in recognizing

entrepreneurial activities. The infrastructure facilities like power, transport,
communication and services are important for development of many small scale
industries. It not only enlarge the market but expands the business.

2. Management Factors

Management is a process of planning, organising, decision-making, motivating and

controlling the human resource. In entrepreneurship management factor comprise of
planning, tolerance to risk, responsiveness to opportunities and relishing challenges.

Planning: Planning help in preparing thoughtful and comprehensive business plan to

foresee the obstacles in entrepreneurship. Planning helps an entrepreneur to identify
exactly what are the needs to be fulfil to establish business venture.

Tolerance to risk: Financial, reputation, environment, economic and political risk are
always there in entrepreneurship. So tolerance of risk is very important for
entrepreneurs. This is done by education, setting of goals, quick response to problem
and by proper planning in advance.

Responsiveness to opportunities: The entrepreneur must be flexible in taking new and

upcoming opportunities. The ability to respond to market opportunities makes a
difference between successful and unsuccessful entrepreneur.

Relishing Challenges: Entrepreneurs face multiple type of challenges in their business

like self-motivation, leadership, few business connections, multiple roles and

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responsibility, human capital etc. By proper education, planning and budgeting these
challenges can be overcome and entrepreneurs can establish new ventures.

3. Political Factor

The entrepreneur cannot function without the support of government actions. It is duty
of government to ensure the availability of resources to entrepreneurs. There are several
aspects of government policies that can affect business. The success and growth of
entrepreneurship is not based on the value that they offer to customers but on several
political reasons relating to economic aspect like capital, land, price,taxation, demand,
bureaucracy, tariff, government involvement, government stability etc. Government
policies like licenses, regulations, government monopolies are important for growth of
business. Political stability is very important for entrepreneurial activity and
entrepreneurial success. The successful entrepreneurs contributes in the wellbeing of
society.

4. Psychological factors

Entrepreneur is not a common person. He is a person with creative, managerial and

innovative skill who contributes in the development of society. Psychological approach
is related to personality trait and its effect on entrepreneurship. The personality trait
refers to personal characteristics of entrepreneur like self-fulfilment, desire to increase
social status, self-realisation, ability to take risk and to gain personal autonomy and
independence. There are number of psychological factors which influence and has great
impact on entrepreneurs to make them successful. These factors are Personality,
Attitude, Vision, Recognition, Perception, Aspiration, Motivation, Innovation, Self-
Confidence, Goals and Locus of control

• Personality: Personality trait is related to personal characteristics of entrepreneurs

and it is divided into two categories: the first is propensity to take risk. An
entrepreneur takes personal risk, management risk and financial risk to establish a
business. So risk-taking ability with flexibility and creativity is good indicator of
establishing new venture. The growth of business is the result of current
opportunities and if entrepreneur is able to take risk then he can utilize his spirit
and talent in starting new ventures. The second category is need for achievement.

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 It is a strongest psychological factor and also a strongest indicator of
entrepreneurial intention. It means the persons having strong desire are more
successful, they solve their problems themselves, put their own efforts, perform
better in challenges and has ability to discover various innovative ways in
enhancing their performance. So personality factor of entrepreneurship is
associated with risk-taking ability, innovation and creativity, self-confidence,
independence and optimism of entrepreneurs.

• Attitude: Attitude is a predisposition to respond positively or negatively towards

various object, ideas, issues, situations or events. Attitude is the result of
experience and has powerful influence over behaviour. Entrepreneurial attitude
affect the entrepreneur in setting of new enterprise. If attitude toward change is
positive it will raise entrepreneurial skill, create new and different opportunities in
the business. It is associated with beliefs, thoughts, values and emotions which
can be shaped by education. Entrepreneurial attitude inspires and motivates new
entrepreneurs.

• Perception: Perception is also known as mindset or individual thinking of

entrepreneur. The think pattern of individual is decided by number of factors such
as culture, values, beliefs, education, laws etc., so it is directly related to
individual attitude, knowledge and beliefs. Perception is a process by which
information from outside world is received, organised and interpreted. By this
process entrepreneur mind receives, organise and interpret physical stimulus
which help him in understanding market. It is related to the attitude because it
interprets prior experience of a person into present. Perception is a process by
which everything is interpreted and understood, it defines the attitude and
character, what happiness means to person and also helps in shaping outlook of
life. Entrepreneurship is all about perception not about information.

• Goals: Goal gives a framework of work and focus on efforts, action and time. It
represent a desired state of our mental idea how we would like to turn out things.
Goal is a process by which a plan can be accomplished. Entrepreneurs need an
effective goal setting which means it should be clear to every entrepreneur what
he want to do. Goals help business to grow and achieve its objectives. Setting of

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 goal is an important part of entrepreneurial activity because it helps in
performance improvement and productivity.

• Locus of control: The concept locus of control was introduced by Julian Rotter in
1950s. Rotter (1966) refers locus of control as a belief, the outcome of our action
is internal control orientation or external control orientation which means
entrepreneur‟s success comes from own abilities and also from outside support.
He also categorise individuals on their perception of contingencies. It is related to
person internal and external belief that he can or cannot (positive or negative)
control his effort and ability. The internal locus of control determines the intention
to become entrepreneur that means the consequences of their lives are result from
their own action and external locus of control is related to force determined by
luck, chance, fate and market. The entrepreneurial survival and success is
dependent on these forces.

• Motivation: Motivation is an inspirational process that drives individual‟s action

towards achieving of goals. Motivation promotes entrepreneur thinking and ideas,
it helps in accomplishing something in life as it is a link between different stages
of accomplishment. It can be positive or negative. Positive motivation inspires for
some rewards and benefits whereas negative motivation arise from fear of failure.
Motivation avoids unpleasant situations, rejection and fear of failure to
entrepreneurs. Motivation is achieved when an individual knows that he is
responsible for outcome of business. Motivation factor helps in framing
entrepreneurial culture in entrepreneurship.

• Recognition: Recognition is a form of opportunity, acknowledgement,

appreciation or value for work done. The three things that are important for
entrepreneur are opportunity recognition, opportunity assessment and opportunity
realization. Opportunity recognition is the potential of entrepreneur to identify
new and better way of providing product and services to meet customer
expectations. Opportunity assessment is the way by which business model is
assess to make plan and to analyse market and Opportunity realization is useful to
take advantage of the situation and it also helps in executing ideas and projections.

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• Aspiration and Achievement: Aspiration means something we hope to achieve or
desire for more than what we already have. It is refining skills and acquiring new
one. Aspiration is a goal concerning statement for future whereas achievement is
the zeal to achieve the goal. The entrepreneur doesn‟t believe in luck but he has
the aspiration and confidence for achieving the goals. Achievement is an
important determinant of efforts, aspirations and persistence because it helps to
evaluate individual performance in relation to excellence of work.

• Innovation: Innovation is commercialization of an invention which includes

introduction of new products, process of production and creation of new markets.
It is also related to new and creative idea which inspires the entrepreneur to move
from conventional to modern business ideas. Innovation helps in searching of new
market, customers, competition and making of profits. The idea of starting
business venture or company is ones creativity and innovation. The creativity and
innovation are the factors of wealth generation so that some people want to
become entrepreneurs.

• Self-Confidence: This psychological trait is the key of success to any

entrepreneur because it is concerned to a person how he feels about his ability to
start-up a new business. Self- confidence has tremendous advantages. It help
entrepreneurs to enhance motivation, willingness to learn, take risk and challenges
and tries to improve own performance. Self- confidence allows an entrepreneur to
turn obstacles into opportunities and weaknesses into strength. It is an important
factor for starting the venture and career growth of entrepreneur.

5. Sociological Factors

Sociological approach in entrepreneurship deals with social and cultural factors which
are responsible for growth of entrepreneurship in society. Max Weber, Young, Cochran,
Hagen are the prominent scholars known for sociological interpretation of
entrepreneurial development. Sociological factors in entrepreneurship has positive
effect on society because it creates jobs, provides social benefit for society, looks into
the interest of people and community. According to Max Weber “Sociology is a science
concerning itself with interpretive understanding of social action and thereby with a

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casual explanation of its course and consequences”. Sociological factors of
entrepreneurship are related to Socio-Cultural Environment, Values, Belief, Religion,
Caste, Family Background, Education, Age and Occupation.

• Socio-Cultural Environment: Socio-Cultural environment is related with social,

cultural and environmental concerns. It is made of activities and relationships by
which people are engaged in their lives. Culture shapes social and economic
institutions and also acts as a source of personality development. It consists of
education, societies, religion, values, age, lifestyle, nature of family, income,
occupation and population which influence entrepreneurial activities, create new
businesses and helps in sustainable development. The socio-cultural environment
can be affected through socio-cultural norms, encouraging personal judgement in
making decision, cause increase rate in entrepreneurial activities and ethical
commitments. The collectiveness of the society is shaped through culture and
behaviour of a person and it provides assistance in dealing various issues of
entrepreneurs in their daily life. If the culture is monetarily oriented
entrepreneurship will be praised.

• Values: Values are the set of principles, standards, beliefs or ideas which are
accepted by the cultured society. They are expression of human needs and
determinant of social attitude, ideologies and behaviour which basically help in
deciding what is right and what is wrong and how to act. It is also related to
personal integrity, honesty, truthfulness and sincerity of an entrepreneur to remain
ethical and fair in most difficult situations of business. The entrepreneurs create
different types of social values such as employment development (job and
employment creation) innovation (development of new goods and services) and
equity promotion (by addressing social issues). Value as a sociological factor act
as a base for entrepreneurial development and also helps in guiding individual for
their actions, plans and solving conflicts.

• Caste: There are several culture practices in the society which has an influence over
individual. Certain caste encourage the growth of entrepreneurial activities. In India
there are certain castes which are traditionally involved in certain types of work.
The caste has big influence on social mobility and occupational mobility because

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 some social groups have larger and capable entrepreneurs than others. Certain caste
and religion encourage entrepreneurial talent and have dominance in
entrepreneurship. As we know in India among Hindus there is a caste system. The
population is divided into four parts Brahmana, Kshatriya, Vaisya and Shudra. It
defines the limit of individual to social mobility which means to move from one
caste to another because the work of each caste is pre-defined. There are certain
caste which are traditionally involved in certain types of work and mostly they
prefer to choose the business that their family is carrying because they find more
ease with it. So caste is one of the most important sociological factor for an
entrepreneur.

• Family background: It includes size, type, occupation, social status and economic
status of family to develop entrepreneurial characters. Background of a family
provides source of entrepreneurial characteristic in entrepreneurs. The atmosphere
and family values provides a great support for entrepreneurial activities because
values and character serve as a strong source to be entrepreneur or not. The
entrepreneurial success of business across generations is through family
experience. The size of family is also important, in large size family an
entrepreneur has little authority but there is a big financial support and great risk
bearing capacity where as in small size family entrepreneur has a command over
family resources.

• Age, Education and Occupation: Age is one of the most important sociological
aspects of self-development and exploring entrepreneurial opportunities because
younger are generally interested in risk taking and they easily resist to change. Age
also affects the tendency of exploring the entrepreneurial opportunities. Experience
increases as age increases but there is an exception to this because some start
working at young age and some above 50‟s and 60‟s but any one can be successful.
Education plays an important role in any society by inculcating social and
entrepreneurial values. Education enables entrepreneurs to exercise and enhance
personal capabilities of setting a business and ability to innovate and adopt new
technologies. Talents and efficiently helps in shaping the personality, perception
and behaviour because education develops man‟s resourcefulness, awareness and

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 innovation capability. Education is very important in this rapid changing business
environment because many entrepreneurs fails in their career because they
possessed experience but not education. Occupation depends on nature of education
an individual has got. Occupation is a background for most of entrepreneurs to start
their ventures.

• Religion: Religion has a strongest influence and barrier on attitude of

entrepreneur. A religion is a cultural institution which drives human behaviour in
several ways. It is an emotional attachment and powerful motive for any
entrepreneur. Some religious communities like Parses, Sindhees and Marwaris
have affinity for entrepreneurial activity. Religion cannot be ignored for assessing
the impact of institutional influence and culture range in entrepreneurial activity.

All factors of entrepreneurship have significant influence on development of small scale

entrepreneurs. But psychological and sociological factors influence, inspires, aspire and
create obstacles in success and failure of small scale entrepreneurs.

1.8 Major Challenges for Small Scale Entrepreneurs

Small scale entrepreneurs face number of challenges in day to day business.

1. Many small entrepreneurs face problem of shortage of funds, they are not able to
avail loan facility as it is time consuming and tedious.

2. There is a lack of availability of adequate and timely credit.

3. Usually small entrepreneurs are heavily dependent on middleman for marketing of

products and middleman exploit them by taking huge commission.

4. There is a severe competition from large sized organisations to small entrepreneurs

and due to lack of skilled manpower, services, marketing etc. small entrepreneurs
are not able to compete.

5. The technique of production is obsolete which led to high production cost, so

technology is most critical element of hindrance in growth of small entrepreneurs.

6. Lack of infrastructure facilities like power, communication and transportation

hampers in efficient working of entrepreneurs.

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7. The small entrepreneurs have limited exposure they are not trained and lacks in
managerial skills so the ventures run by them soon get shutdown.

1.9 Aim of the study

We know that one of the most significant parameter of economic development of India
is based on growth of small scale industries and small entrepreneurs. The key factor of
industrialization can be achieved by structural transformation of traditional and
agriculture goods to modern economic activity. There can be number of reasons to start
a business but the important question is whether there is any impact of psychological
factors on small scale entrepreneurs to start/run the business successfully and is there
any impact of sociological factor in encouraging/ discouraging entrepreneurs to run
business successfully.

There is a progressive steps taken by Himachal Pradesh government in establishing

industrial climate and setting up small entrepreneurial ventures. The small entrepreneurs
play significant role in industrialization of Himachal Pradesh. There is a tremendous
contribution in generating employment and self-reliance by these entrepreneurs in the
state. The focus of study is mainly on two districts (Kinnaur and Solan) of Himachal
Pradesh. District Kinnaur registers very less numbers of entrepreneurs. The reason is
geographical location, environmental condition, non-availability of raw-material,
markets, unskilled labour and less population, whereas district Solan has a large
numbers of entrepreneurs as the district is a gateway of Himachal Pradesh and there is
an availability of man power, raw-material, skilled labour, transportation facilities and
good market opportunity.

The small entrepreneurs face number of problem in starting/running their businesses.

This is due to lack of knowledge, insufficient capital, lack of management and training,
marketing, unskilled labour, legal issues and no knowledge how to be successful in their
ventures. The aim of present research is to examine the important inspirational factors
to become an entrepreneur, impact of various psychological factors in running the
business, impact of sociological factors in encouraging/discouraging entrepreneursto
run business successfully and challenges faced by them in establishing and running their
businesses ventures.

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1.10 Objective of the study

The objective of the study will discover various factors that influence and creates small
entrepreneurs:

1. To study the general profile and present status of small scale entrepreneurs in the
area under study.

2. To study the impacts of Psychological and Sociological factors on small scale

entrepreneurs and to understand the factors that inspires one to be an entrepreneur.

3. To find out the challenges faced by small scale entrepreneurs.

4. To provide appropriate recommendations and suggestions toward the

development of small scale entrepreneurs.

1.11 Rationale of Study

Today entrepreneurship is one of the major process of creating wealth and employment
in the society. It aims in raising standard of people and contributes in making the
country economically strong. The emergence of entrepreneurship depends on number of
factors such as economic, religious, cultural, political, psychological and sociological
which are prevailing in the society. The person who combines these factor with an idea
of starting the business is known as entrepreneur. So entrepreneur is the person who
bring new ideas and take risk of setting new business venture for production of goods
and services and also satisfies consumer needs.

Himachal Pradesh is one of the fastest growing states in India, and is on the way of
industrialization through development of small and medium sector industries. The
present study “Impact of Psychological and Sociological Factors on Small Scale
Entrepreneurs” will help in determining the influence of psychological and sociological
factors on success/encouraging and failure/discouraging of entrepreneurial activities in
small scale entrepreneurs of two districts of Himachal Pradesh (Kinnaur and Solan).
The study will help in finding out the important factors that inspire these entrepreneurs
the most to start the business, the significance of various psychological and sociological
factors on small entrepreneurs, the list of challenges faced by them in setting up and
running of business and necessary measures to be taken for increasing/spreading their

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business. The study will also determine how aware are small entrepreneurs
about policies, plans and programmes framed for their benefit by the central
and state government. The study will also find out that are these policies,
plans and programmeshave any impact on entrepreneurs, entrepreneurship
and in development of entrepreneurial activities in the two districts of
Himachal Pradesh (Kinnaur & Solan)

The study will be helpful in contributing data base for government and non-
government agencies and policy makers who are constantly working for
development of small scale entrepreneurs. The study will also show whether
there is any effect of various EDPs (Entrepreneurship Development
Programme) like training, skill development, technical knowledge, use of
locally available resources etc. organised by government and private
sections on small scale entrepreneurs. Are these programmes useful? Are
these programmes contributing and encouraging more entrepreneurs in the
districts under study.