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Rural Enterprises

Village entrepreneurship as a key to rural growth

The active promotion of enterprises in rural India is a possible way to further growth in the countryside and there’s need to examine their possibilities and limitations in order to tackle the problem of burgeoning unemployment
A village shopkeeper in Himachal Pradesh. (Photo by Michael Foley)

A village shopkeeper in Himachal Pradesh. (Photo by Michael Foley)

Arable land in India is limited and further expansion of the area under cultivation has virtually stopped. Mechanization is happening in agriculture in virtually every possible activity — from ploughing to harvesting. Finally, the growth in irrigation is tardy and mired in a wide range of seemingly complex problems. Hence, further growth in net sown area is unlikely to be significant.

As a combined result of all this, further absorption of labor in agriculture is very unlikely. This goes in tandem with the fact that virtually every able-bodied man who can wish and actually gets out of agriculture and migrates for work outside, often in urban centers. This creates the problem of unwieldy if not chaotic urbanization on one hand and a complex problem of managing a very large but footloose workforce comprising seasonal migrants.

Promoting enterprise

In such a scenario, promotion of enterprises and self-employment for rural people is seen as a possible way to further growth in rural India. The possibilities and limits of enterprises as a solution to the burgeoning problem of rural unemployment need to be examined in this light.

Humility demands that we start by accepting that preaching about entrepreneurship to rural people is like carrying coal to Newcastle. The rural individuals do identify an opportunity for earning incomes and they do manage and maneuver resources around them to cater to that opportunity. They actually cater to it and derive their livelihoods. They carry huge risks in the entire process — the risk of obtaining raw materials in time, the risk of ensuring they stay good, the risk of locating and engaging with a buyer for their produce, and certainly the price and payment realization risks. Thus in almost all respects, what they do matches the copybook definition of what an entrepreneur does.

The only difference is that an entrepreneur aims to grow his enterprise but rural individuals essentially stay satisfied just meeting their livelihood needs. In all other respects, most of the activities which rural people carry out, including farming, have an entrepreneurial content.

Types of enterprises

It may be instructive to see what exists on the ground. Enterprises were classified based on size or equivalent parameters (employment, capital invested, etc.) earlier in order to fit them to the agenda of the specific regulatory and promotional agencies. For the moment, we deviate from such categorization of enterprises. It is perhaps more functional and relevant to categorize enterprises on the basis of their relation to rural livelihoods.

A livelihood enterprise is the simplest form of an enterprise. Here the entrepreneur is a solo operator managing all functions of her enterprise and her main goal is earning sufficient money to make her ends meet. She has no employees. She perhaps cannot distinguish between her work and her life because the two are inexorably intertwined.

Such enterprises are often based on collection of naturally occurring items (wood lopping, roots, fruit, other material), rudimentary processing in the sense of sorting, grading etc., and selling it in proximate markets. The other form of enterprises in this class is connected with commonplace items of consumption such as snack foods or flower garlands. A somewhat advanced form of this type is seen when she makes articles of artistic appeal such as handlooms or handicraft items, which may have functional utility and artistic value in about equal proportion. The chief characteristics of this type of an enterprise is that it is oriented towards meeting current needs and not towards capital accumulation and that it involves no one other than the person (the entrepreneur) herself.

Institutionalized enterprise

A more institutionalized form of this enterprise, also commonly across villages in the country, is the family enterprise. In this, while a certain degree of employment of persons other than the entrepreneur is observed, the employment is of basically members of the same family.

Some degree of division of labor is also observed. One person goes for collection of materials from the neighborhood, a second person may specialize in processing it while a third could deliver it to customers and collect money. Most allied activities such as dairying or small-scale horticulture fall in this category. The younger people go collect grass for the dairy animal, the housewife tends to the animals and milks them and the husband or the son goes to deliver in the market and collects money. But the enterprise has the same basic character as the livelihood enterprise — it is oriented towards meeting consumption needs and there is hardly any formal separation between work and life.

Further up the ladder

As one proceeds further up the ladder, we come to the third category of relevance, namely that of the aggregator. The aggregator collects the produce from several livelihood or family enterprises and focuses on marketing the produce so pooled. This enterprise necessarily has a division of labor in it. Someone focuses on engaging with managing the transactions of vendors. Depending upon the total quantity thus pooled, the enterprise may need a range of operations for marketing — from engaging a few persons to deliver to multiple customers to maintaining a full-fledged establishment in the nearby market town.

The aggregator could be a simple aggregator who simply pools the produce and sends it further up, or she could have a processing wing to her operations. The latter then becomes even more complex since processing would follow its own technology and hence technical logic, involve staff specializing in specific operations in the processing part and perhaps different staff catering to distribution needs of different type of produce or by-product.

The size, the commodity and the location of this enterprise tend to influence the extent to which it shows the characteristic attributes of livelihood enterprise in terms of ability to meet consumption needs being the primary goal and little separation between work and life.

Growth-oriented enterprise

Beyond this stage, even rural or rural based enterprises start acquiring the nature of growth-oriented capitalist enterprises. Their physical location tends to shift to market towns, there’s a clear separation between owners, managerial and supervisory staff and workmen starts appearing and the distance rises between the enterprise and the locale of primary production and collection.

The question is whether one wishes to try for greater labor absorption in these enterprises or to build on this entrepreneurial base or for the sake of expanding employment in rural areas one wishes to strike out a new line of enterprises which do not depend on existing materials, skills or orientation of the people. That in turn would have serious and practical implications for the task of enterprise promotion and livelihoods creation.

Sanjiv Phansalkar is associated closely with Transform Rural India Foundation. He was earlier a faculty member at the Institute of Rural Management Anand (IRMA). Phansalkar is a fellow of the Indian Institute of Management (IIM) Ahmedabad.

Views are personal.

Sanjiv Phansalkar
Sanjiv Phansalkar
Sanjiv Phansalkar is associated closely with Transform Rural India Foundation. He was earlier a faculty member at the Institute of Rural Management Anand (IRMA). Phansalkar is a fellow of the Indian Institute of Management (IIM) Ahmedabad. Views are personal.

6 Comments

  1. Amit Asnikar says:

    Nice article. I definitely agree that rural entrepreneurs are no away from the book definition of an entrepreneur.
    The categories of entrepreneurs are complex on ground.
    In MSRLM we have focused on graduating the enterprises. Underatanding whether the income from the enterprise is primary, secondary or tertiary income source of that family.

  2. Anurag Shukla says:

    This is in fact the ONLY way. Farmers are dying because all the work done by the farmer as an artesan have been taken away to cities. They have to be brought back to the villages.

  3. Sunil Bhure says:

    I strongly believe in this concept and started tofu (soya paneer) plant at Nanded, but did not get the price for it.

  4. sebastian p says:

    Like to be informed and share the experiences.

  5. Liby Johnson says:

    Extremely relevant article. Thank you for this.

    Very often the lot of us, who work in/towards supporting the promotion enterprises as a means to better livelihoods for those in need of such support, miss this basic categorisation. Reality is that majority of businesses that get formed are of the first category, may be some of the second as well. Those sitting higher-up and responsible for policy formulation somehow think that such progression is sub-optimal. Everyone wants to promote the last category of growth-oriented, wealth-creating enterprises. Given that the entrepreneurs who take part in such interventions are looking at strengthening their livelihood options, the subsistence route is often the only route they can start with. Experience in various places have shown that when such entrepreneurs are provided the right kind of support, there is substantial scope for growth and expansion. Just as a child has to pass through classes one to nine before she is competent to appear for class ten exams, entrepreneurs too, have to pass through a learning stage.

    Government ‘projects’ to promote enterprises do not allow this learning progression. Senior bureaucrats are loath to see kirana shops or small tailoring shops or tea shops being promoted. They think the entrepreneurs do not need any support and that such businesses will come up on their own. It may happen so in case of the better endowed persons, but when the focus is on reducing the incidence of poverty, it is a tough ask. We need these large number of initially sub-optimal businesses for the entrepreneurs to realise themselves and set off on a path of growth.

    I hope that you will continue research and writing on this and help build momentum towards breaking the unnatural boundaries of farm/ non-farm enterprises and help create better understanding of fundamentals (as this article does) to benefit Government, CSR agencies, implementing organisations, young professionals and the academia.