Entrepreneurship : Does it matter ?

11. First, does entrepreneurship matter? Schumpeter and much later Kirzner certainly thought it did. Indeed, economists often add entrepreneurship as the fourth factor of production to the traditional trinity of Land, Labour and Capital. They saw an entrepreneur as an innovator, risk taker and arbitrageur who introduced new technology, competition and created new markets. More recently 'entrepreneurial capital' is a term that is increasingly being employed.

12. Empirical evidence whether the level and rate of entrepreneurship are significant determinants of economic growth, productivity or employment, is mixed. However, the general consensus is that entrepreneurship matters not merely from its impact but also in the context of human development.

13. Entrepreneurship in India comes in four shades. First, is entrepreneurship for survival. Typically, this involves promoting poverty alleviation and self employment projects such as basic animal husbandry, petty business, etc. The finance vehicles for these are poverty alleviation schemes and, today, this form of entrepreneurship is the focus of micro-finance activities and banks in the rural areas.

14. Secondly, there is entrepreneurship that relies on internal business sense for local ventures. These typically consist of employees with practical / technical skills striking out on their own such as producing ancillary items. These largely involve proven technologies and cater to established markets.

15. Thirdly, there is 'add on' or 'lifestyle' entrepreneurship which consists of life-partners starting businesses on a part time basis such as tailoring, catering, pickle making, beauty parlours, day-care centres etc. These are driven by various motives - most start with the need to augment domestic resources especially during times of job losses of partners. Others do it for non-monetary benefits associated with being their own bosses and setting their own schedules. At times, some of these activities succeed to an extent that they become primary activities.

16. Finally, there is entrepreneurship driven by ideas and innovation. Typically, these are start ups that have a well-defined growth plan and exit strategy and rely for funding on venture capital or institutional finance. Typically, these involve new or relatively untried technologies and often untried promoters. These high risk ventures, when they succeed, create breakthroughs and have the potential to create substantial wealth. The success stories are legendary and too many to enumerate. It is in this realm of break-through technologies and innovation, where India has lagged for 500 years while the Industrial Revolution took place in the West, that the future of Indian entrepreneurship lies if India is to fully tap its greatest resource - its talent pool. It is here that you will contribute by bringing in new ideas and utilizing new technologies in the knowledge based activities.

17. To sum up, entrepreneurship matters for both growth and for development. It matters not merely for employment generation, the development of backward regions, mitigating economic concentration, and for spurring innovation, but also to enhance the capabilities of society and enhance people’s freedoms and choices. Looking ahead, it is the area of entrepreneurial innovation, specially in the knowledge industry that has the potential to pitch India into an economic leadership role, which then can make a difference to our development trajectory.

Entrepreneurship and finance

18. What then is the role of finance? While the entrepreneur brings in ideas, techniques, innovations and passion which go to constitute entrepreneurial capital, it needs to be backed by command over a real resource. This is provided by finance. Finance, thus, enables entrepreneurship to become the fourth factor of production.

19. India has, in many ways, pioneered the concept of dovetailing credit into the country's development endeavours. The original purposes were poverty alleviation and employment generation. The policy interventions were premised on providing credit to draw out the entrepreneurial spirit. This, it was hoped, would enable large sections to lift themselves out of the vicious circle of poverty, create employment, spur growth, and contain rural to urban migration.

20. Policy measures include the concept of priority sector lending which, through affirmative action, helps channelize credit to small and medium industries; collateral free lending for loans up to Rs 10 lakh; guidelines for faster processing of loan applications by banks; allowing composite loans for working capital and term loans; specialised MSME branch in most districts; adoption of the cluster-centric approach; guidelines to expedite payments to MSME suppliers; collective forums to resolve issues relating to MSMEs including State Level Inter-Institutional Committees (SLIICs) amongst others.

21. Today institutions such as SIDBI, NABARD, EXIM Bank, Housing Finance Institutions (HFIs), and State Finance Corporations, the various commercial banks as well as venture capital providers and Micro Finance Institutions are a part of the financial infrastructure for providing finance to small entrepreneurs and to spur entrepreneurship.

22. These financial institutions have played a critical role in India's quest to draw out entrepreneurship. First, they have been instrumental in making available consultancy and advisory services to entrepreneurs at a reasonable cost by setting up a network of Technical Consultancy Organizations (TCOs). Second, they have helped spread the entrepreneurial culture across the country and to weaker sections of the society by providing financial assistance to first generation entrepreneurs. Third, their contribution to capacity building through entrepreneurship development programmes (EDPs) which are a precondition for lending to prospective entrepreneurs has been notable. Finally, they implement a host of government programmes such as the Prime Minister’s Employment Generation Programme (PMEGP). These programmes not only provide incentives and subsidies but also impart technical skills, hand-holding support and assistance.

Creating conducive ecosystems: Role of Government

23. Entrepreneurship and finance are not ends in themselves. They require a favourable ecosystem and here is where you have the role of government. Complementing finance, entrepreneurship needs a conducive ecosystem to thrive. What is the support a budding entrepreneur can avail of? First, the central and state governments have created an extensive infrastructure at the central, state and district levels to create an enabling ecosystem for entrepreneurship. The infrastructure ranges from providing technical consulting facilities and advisory services to incubating projects.

24. Many of these infrastructure initiatives go back a long way when a host of institutions were set up. Some of these were the Small Industries Development Organisation (SIDO) (1954), the Small Industries Services Institutes now known as Micro, Small and Medium Enterprises Development Institutes (MSMEDIs), the District Industrial Centres (DICs), etc. These organisations, had their own problems, but are now in a phase of reinventing themselves. For instance, SIDO is now an agency for advocacy, hand holding and facilitation for the small industries sector providing a wide spectrum of services to the small industries sector.

25. Capacity building endeavours have been very considerable. These are organised not only by the national and state level institutions such as the national entrepreneurship institutes at Ahmedabad, Noida, Hyderabad and Guwahati and MSMEDIs but also by various Industrial Training and Vocational Training institutes through specialized courses supported by the Ministry of Medium, Small and Micro Enterprises (MSME).

26. Another facet of Government policy has been to create a culture of entrepreneurship. This has been attempted by including entrepreneurship into the education curriculum. Entrepreneurship Development Cells (EDC) has been set up across the country. This was followed by the Science & Technology Entrepreneurs Park (STEP) programme coordinated by the National Science and Technology Entrepreneurship Development Board (NSTEDB). The major objective of STEP is to forge linkages among academic and R&D institutions on one hand and the industry on the other.

27. A range of critical support services and needed facilities to nurture and support start-up entrepreneurs are provided by Technology Business Incubation (TBI) Mechanisms.

28. Finally, there are hand holding schemes such as the Rajiv Gandhi Udyami Mitra Yojana (RGUMY) which provide handholding support and assistance to the potential first generation entrepreneurs, who have completed EDP or Vocational Training programmes.

29. Can entrepreneurs be created? This question is cast in the mould of the nature vs. nurture debate. There are no answers. However, ingrained in the idea of EDCs, the STEP programme and Technology Business Incubation and MSME initiatives is the idea that by creating the right and conducive ecosystem and by education and capacity building, entrepreneurship talent latent in society can be drawn out, and, perhaps, this conducive ecosystem can also create new entrepreneurs.

Inclusive growth and social entrepreneurship

30. From the 1990s India’s growth rate has accelerated from the Hindu rate of growth of 3.5%. India has had much to celebrate over the past two decades on the economic front. It has become one of the world’s fastest growing economies. Indian companies have made their mark abroad and indeed many are transforming themselves into multinationals with a global presence. Most important, there is a new found sense of confidence. Confidence reposed by the world in us and confidence by us in ourselves. There certainly is the feeling of 'Yes, we can!’. To sustain this momentum, it is important that the growth that we have seen is inclusive, people centric and translates into overall development. It is important that this feeling and confidence permeates all sections of society and none are left out of the India growth story. Without this we will not be able to sustain high growth.

31. While the growth story has been impressive, there are causes for concern on other dimensions. Issues of income distribution are important. We have a long way to go in addressing concerns of absolute poverty. In the context of human development, the country ranks 119 among 169 countries on the 2010 Human Development Index published annually by the United Nations Development Programme. We compare poorly on almost all indicators such as life expectancy, education and per capita income. We have issues of water, sanitation, power, infrastructure and environmental degradation. More importantly, there are issues of social and economic inequalities and multiple deprivations. All budding entrepreneurs have to face these challenges and find solutions.

32. With these concerns in view, Government of India has adopted the strategy of inclusive growth in the ongoing Eleventh Five Year Plan. This entails triggering a series of development process that ensures broad-based improvement in the quality of life of the people, especially the poor, and the underprivileged. A number of schemes seek to address issues of livelihood and seek to act as social security nets. To make these schemes and policy interventions effective, it is important that the common person in general and beneficiaries in particular have access to the banking sector to receive and make payments on their own account. As inclusive growth is not possible without financial inclusion, 'financial inclusion' has become a major policy plank. RBI vision is that everyone in the country should have access to financial products and services but our immediate objective is that every village with a population exceeding 2000 (and subsequently all villages) should be covered either by a bank branch or through a business correspondent by 2012. The rationale behind this is that access to finance, along with fair and transparent products/services, is a source of empowerment and allows people to participate more effectively in the economic and social process. Our dream of inclusive growth will not be complete until we create millions of micro-entrepreneurs across the country.

33. In this context of inclusive development, the course in social entrepreneurship offered at the EDI assumes importance. While the term social entrepreneurship is new, the activity of building social capital is not. In the mid 19th century Raiffeisen innovated the credit unions and set in motion the cooperative movement; Vinobha Bhave led the Bhoodan Movement pooling and redistributing land; closer to the present, social capital built by pioneers such as Ela Bhatt of SEWA, Kurien's AMUL initiative or Mohammed Yunus's Gramin Bank have charted new directions and have led the way.

34. India, today, is home to the largest number of NGOs in the world. A recent government study estimates the number of NGOs at 3.3 million. This is many times more than the number of primary schools and primary health centres in India. While we have the comfort of numbers, we do not have the comfort of commensurate results. We trust that some in our midst, who are stepping out to pursue a career in the social sector and become agents of social change, will not only fill in this deficit but will also pioneer new areas.

Of Profits and Ideals

35. While much of social capital creation has been driven by idealism and the non profit sector, a view that is fast gaining ground is there is profit while serving the bottom of the pyramid – and that creating access to essential services and products for under-served communities - rural or urban, below or above the poverty line, can be profitable. In fact we believe that commerce for the poor is more profitable than commerce for the rich. Our young entrepreneurs should not forget this cardinal rule.

36. While the idea is both innovative and has proved effective, we here tread a difficult area. Business entrepreneurship is easy to handle. Its immediate results are easily quantifiable in wealth created and jobs generated. Social entrepreneurship is more difficult. Their efficacy can be gauged by changes in society. Social change and the creation of social capital are certainly commendable activities. However, any advocacy for social change and the nature of social capital created is rooted in values and one has to exercise due care and caution in imposing the values of one society on another.

The Issue of Ethics

37. As you graduate from the EDI, what is it that you should hold fast to? First, is the issue of values and ethics. The cries for values and ethics in business stem from what is alluded to as the 'crisis of confidence'. These concerns have exacerbated in the wake of unexpected corporate failures and high profile collapses both abroad and in India. I will not spend time on the global meltdown which is well known.

38. What then are the qualities needed to make ethical decisions? First, is the ability to recognise ethical issues; second, the ability to reason through the ethical consequences of decisions; third, the ability to deal with ambiguity; fourth, the ability to distinguish between ends and means; fifth, the courage to go by conviction rather than consequences; sixth and most important, cultivating the integrity to face ethical dilemmas that you will face in the course of your career head on and to resolve them. Here, we should remember that, as in sport, what is important is not winning, but playing a fair game. Playing a fair game, may lead to failures and lost battles, but will surely win you the war in the arena of life.

39. Schumpeter referred to the entrepreneur as 'Mann der Tat' or a Man (person) of Action. The entrepreneur, he said, was someone who does not accept reality as it is. If there exists no demand for a good or service, the entrepreneur will create such a demand; s/he will make people want it. S/he acts decisively and does not feel the restrictions that block the actions of the other economic actors.

40. While you may strive to achieve the Schumpeterian ideal, I must caution that do whatever you have to do, bounded however, by ethical norms. These norms cannot be taught in a class room; these will be learnt in the crucible of life. Pursue substance and not form. Remember, it is not compliance to set norms that matters, but what you feel deep down in your heart is fair and right; seeking, in Wallerstein's words, 'the good, the true and the beautiful'.

41. And now for the customary homilies. As you leave the portals of this institution, we trust you will be persons of action, with hopes, aspirations and dreams. Dream on, but take care not make dreams your master. Enjoy what you do and do it with passion. Ensure that the excitement, passion and romance in building a new organisation and creating something new is shared by all in your team. Take those you work with, along with you. Deal with failure as a guide and with triumph with humility. And most important, cultivate a sensitivity to the rights and vulnerabilities of others.