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Entrepreneurship Development and Employment

Generation in India: Opportunities and Challenges

Manish Kumar Goswami

Junior Research Fellow (JRF), Department of Economics,
University of Allahabad, Allahabad, 211002

Abstract

To provide decent living standard to everyone is an important objective of the government. Creation of
productive employment is one of the effective ways to tackle this issue. However, India has failed to create
desired level of job in recent decades during the structural reforms period. Rapid entrepreneurship
development is need of hour to solve the problem of unemployment. It affects composition, pattern and pace of
economic development in the country. We need competitive and productive MSMEs sector and new start-ups to
realize the potential of India. Growth through entrepreneurship-led strategy will not only contribute in GDP
but also create employment that is very important a country like India. Demand is no problem for India. We
have huge domestic demand which majorly fulfilled by import. Entrepreneurship is essential to fulfill our own
demand. Demographic dividend is an opportunity for India to take competitive advantage in production
through various start-ups, but skill deficient working population is an obstacle in this path. We can overcome
this challenge through proper manpower planning. Entrepreneurship has forward and backward effects on
rural development, industrialization, technological development, export promotion etc. Nevertheless,
government has attempted to revitalize entrepreneurship development in country but it is still faces many
challenges. Therefore, an attempt has made to study the implications of the recent policy reforms of
entrepreneurship and various issues and challenges in India in the wake of start-up, stand- up India and make
in India programme. The study found that governments has given much attention on skill development to reap
the benefit of demographic- dividend. Effective implementation and to provide suitable environment is still a
difficult task. Study based on secondary data obtained from the Ministry of MSMEs, the MoF, and the CMIE,
the annual economic survey report.

Keywords: Entrepreneurship, Employment, Start-Up, Demographic- Dividend.

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Introduction

It has been realised that the growing significance and visible impact of Entrepreneurship in wealth-
creation and employment-generation in the world arena which compels to us to think about its critical role to
India’s growth and development at new way. Although, we have emphasized entrepreneurship development in
country especially after the new economic reforms. But due to lack of robust business environment, we have
not succeeded much as it was desired. Its benefit cannot be ruled out for a country like India that has huge
‘reserve army’.

Entrepreneurship, as defined by National Knowledge Commission ( NKC), is the professional

application of knowledge, skills and competencies and/or of monetizing a new idea, by an individual or a set of
people by launching an enterprise de novo or diversifying from an existing one (distinct from seeking self
employment as in a profession or trade), thus to pursue growth while generating wealth, employment and social
good’.

Entrepreneurship acts as a catalyst for the economic prosperity of a nation as it leads to generation of
employment, contribution in national income, rural development, industrialization, technological development,
export promotion etc. In India, the government from time to time for entrepreneurship development in the
country has taken various initiatives. However, literature reveals that entrepreneurs face a number of problems
that obstruct the growth of entrepreneurship. To meet these challenges, a need was felt by government to
initiate a new set of policy reforms in India that has led to a remarkable improvement in recent years.

That is why entrepreneurship is considered a prime mover in development of our country to boost up
business ecology. This is need of hour to transform India’s demographic force into ‘job creator from job
seeker’. Therefore, the main objective is to study the entrepreneurship development in country to reform
economic policy, to transform economy in start-up hub and to perform and lead economy by competitive Indian
entrepreneurs.

Literature review

There is extensive research done to understand the effect of entrepreneurship on economic development
in developed countries but it is rarely done in India. Some of them highlight the different aspects of
entrepreneurship such as entrepreneurs contribute to economic development in terms of job creation, innovation
and external income generation, as concluded by Smallbone and Welter (2001), depending upon priorities and
different stage of market reform. The authors suggested direct support to SMEs to overcome immediate
difficulties to strengthen their potential for development and growth. likewise, Carland and Carland (2004)

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studied the impact of entrepreneurship on employment and economic development of United States. They
found that firms with less than twenty employees have greatest impact for the decade of 1990’s. They suggested
that the firm has great potential for future economic development. They also suggested the economic policy
changes should be in line specifically to boost entrepreneurship. On focusing the state of developing economy,
Naudé (2008) highlighted that Entrepreneurship has important role to play in fostering from a predominantly
traditional / agrarian economy to modern economy. With innovation, driven growth productivity is increased in
advanced countries. Self-employment, startup and credit market determine quantity and quality of
entrepreneurship. They found that low entrepreneurial activity contribute to economic stagnation and even
developmental gap. On the other hand, Liu, Burridge, and Sinclair (2002) had investigated the causal links
between trade, economic growth and inward foreign direct investment in china. With quarterly data long run
relationship found between growth, export, import and FDI. The author finds bidirectional causality between
economic growth, FDI and export that reinforce open door policy. Development of banking institution is
another important component as focused by Leff (1978), which allows firms to obtain formal finance
promoting entrepreneurship. In addition, the improvement in the flow of communication among firms, reduced
cost of gathering information and facilitating the diffusion of technological and managerial expertise promote
entrepreneurship. In the same queue, King and Levine (1993) had found that financial system affects the
entrepreneurial activity in following four ways (a) financial system choose the most promising projects after
evaluating (b) financial system help in mobilizing of funds (c) financial system allow investor to diversify the
risk associated with uncertain innovative activities (d) financial system reward to engage in innovation relative
to confirmation of existing knowledge. Better financial system stimulates foster productivity growth and growth
per capita output. They suggest that government policies toward financial system may have an important causal
effect on long-term growth.

Objective of Study

 To study the role and importance of entrepreneurship with respect to growth and employment
generation in India.
 To study the current scenario of entrepreneurship development India
 To study the opportunities and challenges of entrepreneurship development India

Data Sources and Methodology

This paper has been analyzed the role and importance, opportunities and challenges, current scenario
and future prospects of entrepreneurship development especially in respect to growth and employment in India.
The work has used theoretical econometric method for better understanding of the consequences of

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entrepreneurship development in India and done trends and SWOT analysis. Study based on secondary data
obtained from the Ministry of MSMEs, the ASI, the Economic Census of India, and the CMIE, the annual
Economic Survey report.

Analysis

Techniques of data analysis

The regression model employed to establish the relationship between explanatory and dependent
variables. The Ordinary Least Square (OLS) technique implied to estimate the numerical estimates of the co-
efficient in different equation.
Model specification
The functional relationship between employment generation and entrepreneurship development
specially registered manufacturing sector in India-
NOE = F (NOF, GFCF, VOO etc)
Where NOE is total number of employees; NOF is total number of firms; GFCF is gross fixed capital
formation; VOO is value of output. All variables are in respect to industrial establishment in India.
Econometric model
Gw NOE= β0 + β1 Gw NOF+ β2 Gw GFCF +β3 Gw VOO + et
Where Gw represent percentage growth of variables. Dependent variable is number of employees ( NOE) and
number of firms (NOF), gross fixed capital formation (GFCF), value of output produce by registered
manufacturing in India.

TABLE-1: Result
Variables β- value t- value p- value Level of
significant
GW OF NOE 0.031 0.39 0.57 not significant

GW OF NOF 0.21 0.47 0.63 not significant

GW OF GFCF -0.001 -0.021 0.98 not significant

GW OF VOO 2.24 -1.63 0.10 not significant

C -3.05157 -2.311 0.082 not significant

Source: Author’s Calculation

Findings: I have checked Stationarity of the data through ADF test. Data sets are stationary but the relationship
between the Growth of NOE and growth of NOF, GFCF, and VOO are insignificant because null hypothesis
rejected. Therefore, we need to study the entrepreneurship development in India through statistical graphs that
is explained as following.

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Figure-1: trends in number of firms during the study period.

250000 230435
211660
200000

150000 134571 129074

112286
105037
100000

50000

0
1985

2003

2014
1981
1982
1983
1984

1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002

2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: ASI
The Annual Survey of Industries (ASI) is the principal source of industrial statistics in India providing
information on important characteristics of registered manufacturing sector. According the ASI data, number of
firms increases over the years. In 1981, total number of registered manufacturing firms were 1, 05,037 that
provided 77, 77,868 jobs. There was slight increment in number of firms in 1991 accounted 1, 12,286 which
supported 81, 93,590 jobs. Thanks to policies and initiatives especially by Janta Government was important
factor. The number of industries increases till 1995 and remains constant three years till 1997. But, after that
growth of industries stagnant till 2009 this may be due to globalization that affects MSMEs sector. Since 2010,
it gains momentum and rises to 2, 11,660. The number of firms increases to 2, 30,435 in 2014-15 and
contributed in employment by 1, 38,08,327. The number of firms and employment generation both shows
upward linear trends that means both has been increasing over the years although this is not satisfactory at the
point by Indian requirement to increase share in GDP and employment generation. See the figure 1 & 2. The
successive government has been focused continuously on MSMEs sector. This sector has critical importance to
not only contribute in GDP but also has immense potential to create jobs.

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Figure-2: number of employs increases in industrial establishment.

16000000
13808327
14000000

12000000 11252793
10044697
10000000
7777868 7441879 7686654
8000000

6000000

4000000

2000000

0
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Source: ASI

Note- data is not available for 1999.

Figure-3: relationship between NOE, GFCF and VOO.

50000000
45000000
40000000
NOE
35000000
30000000 GFCF

25000000
VOO
20000000
15000000
10000000
5000000
0
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Source: ASI

Value of output and gross fixed capital formation is measured in Rs. Lakh.

The number of employees depends on primarily two factors. One is gross fixed capital formation and
value of output. If both increase, employment generation also increases. Since 2001, gross fixed capital

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formation increases exponentially. And the value of output increases less exponentially since 1989. However,
average employment remains stagnant in terms of employment elasticity. This story is display by figure-3.

The total number of units in the SSI sector stood at 118.6 lakh in 2004-05 and this number rose to 361.8
lakh in 2006-07, significantly. The total number of MSMEs units increases slight upward linear and reaches
510.6 lakh units in 2014-15. In 2014-15, the MSME sector contributed 7.0 per cent of GDP and 37.3 percent of
manufacturing output. The SSI sector employed 282.6 lakh people in 2004-05 and this number rose to 805.2
lakh people in 2006-07 after big boost by MSME act 2006. Employment in the MSME sector stood at 1011.7
lakh in 2011-12 and this increased to 1, 171.3 lakh in 2014-15. As it is clear from figure-4.

Figure-4: current scenario of MSME sector

1400

1200 1171.3
1114.3
1061.4
1000 1011.7 no. of MSME
965.8
880.8 921.8
842.2 (in lakh)
800 805.2
employment
600 (in lakh)
510.6
400 410.8
361.8
282.6
200
118.6
0
2004-052005-062006-072007-082008-092009-102010-112011-122012-132013-142014-15

Source: Ministry of MSME

Within the manufacturing sector itself, small and decentralised sector contributes about four-fifths of
manufacturing employment in India. Given the acute unemployment problem in India, creation of employment
opportunities will depend crucially on the development of the small- scale and cottage industries as it is more
labour intensive sector.

Opportunities and Challenges

There are certain psychological challenges such as one; family challenges- convincing to opt for
business over job is not an easy task for an individual. People are more eager to jobs especially public sector.
The most of the young creative energy is consumed by civil cervices exams especially in north India. Second
is a social challenge, which further affects the thinking of student. Traditional attitudes are obstacles in the way.

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Technological challenge is another concerning issue- our education system, which does not impart professional
skill and technological knowhow, we are net consumers of knowledge also. That is only during the exam.
Financial constraint is another big hurdle to credit facility. Financial and technological challenges are a
different in India especially for online entrepreneurs. When you are starting out as an entrepreneur you don’t
opt for venture funding but try to go with funding from small to medium business people. Many such non-
technical business people don’t understand the online business models as a whole and so getting an initial
business funding from them becomes challenging. Policy constraint is another challenges- there is limited
scope for the government to provide subsidies etc due to international agreements and protocols. Instead of
this, business environment, raising equity capital, availability of raw materials, outdated technology and
increased pollutions ecological imbalance are another issue to flourishing entrepreneurship development in
India.

However, there are lots of opportunities also available for entrepreneurship such as free entry into
world trade, improved risk taking ability due to competition and efficiency, Encouragement to innovations and
inventions, consideration increases in government assistance for international trade, establishment of other
national and international institutes to support business among nations of the world, specialization, Social and
cultural development are big impetus to entrepreneurship development in India. The government has
commitment towards entrepreneurship development in country. There are dedicated policies, initiatives,
persuasions, funds available. The MUDRA bank, stand up India, start up India are ambitious programme of the
government instead of various others prevailing programme.

Conclusion

A stable business environment, market oriented reforms like raising of FDI cap, and key initiatives like
Make in India and digital India are fostering a new aspiring and ambitious Indian. Still we need a
comprehensive action plan by the government to address the issues of finance and credit, infrastructural
bottlenecks, tariffs structure, technological constraints and market availability etc. without giving a basic idea I
emphasized earlier report which recommendations are not fully operational. To mention a few, in the S.P
Gupta “Special Group Report on Targeting 10 million Employment Opportunities Per Year” (2002)
recommended “appropriate programmes should be launched to increase entrepreneurial capabilities and skill for
self-employment.” Montek Singh Ahluwalia “Report of the Task Force on Employment Opportunities”,
July 2001 also mentions about developing entrepreneurship ability among the newly self-employed. The
Report even recommends entrepreneurship training for the informal sector. To quote, “A large part of the
employment generated by the economy will be self-employment in the informal sector. These self-employed

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entrepreneurs need training of the multi-skill variety, going beyond production skills to include marketing,
finance and accounting and elementary management. Such skills cannot be developed through structured formal
training but requires the guidance of “mentors” in actual business conditions”.

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